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Adverse shocks to rich countries often have a large and persistent negative impact on investment and output in developing countries. This paper examines a transmission mechanism that can account for this stylized fact. The mechanism is based on the existence of international financial frictions. Specifically, if a small, developing country has to collateralize its assets to borrow funds to invest, falling asset prices caused by a negative shock in an advanced economy worsen the developing country's collateral value and reduce its ability to borrow and reinvest. Hence, investment in the developing country declines, and international investors repatriate capital to the advanced country. As less capital now can be pledged as collateral, the developing country's credit constraint is further tightened, which leads to another round of decline in investment. This generates a downward spiral that may cause large output losses to the developing country. The mechanism finds empirical support in the 2008-2009 crisis data.

Asset prices --- Asset value --- Capital outflows --- Collateral --- Country Strategy & Performance --- Credit constraint --- Credit constraints --- Debt Markets --- Decline in investment --- Developing countries --- Developing country --- Economic Theory & Research --- Emerging Markets --- Emerging markets --- External debt --- Finance and Financial Sector Development --- Financial crisis --- Foreign banks --- International bank --- International financial institutions --- International financial statistics --- International investors --- Investment and Investment Climate --- Macroeconomics and Economic Growth --- Negative shock --- Output losses --- Private Sector Development --- Spot market

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The management of financial crises in emerging markets is a vital and high-stakes challenge in an increasingly global economy. For this reason, it's also a highly contentious issue in today's public policy circles. In this book, leading economists-many of whom have also participated in policy debates on these issues-consider how best to reduce the frequency and cost of such crises. The contributions here explore the management process from the beginning of a crisis to the long-term effects of the techniques used to minimize it. The first three chapters focus on the earliest responses and the immediate defense of a currency under attack, exploring whether unnecessary damage to economies can be avoided by adopting the right response within the first few days of a financial crisis. Next, contributors examine the adjustment programs that follow, considering how to design these programs so that they shorten the recovery phase, encourage economic growth, and minimize the probability of future difficulties. Finally, the last four papers analyze the actual effects of adjustment programs, asking whether they accomplish what they are designed to do-and whether, as many critics assert, they impose disproportionate costs on the poorest members of society. Recent high-profile currency crises have proven not only how harmful they can be to neighboring economies and trading partners, but also how important policy responses can be in determining their duration and severity. Economists and policymakers will welcome the insightful evaluations in this important volume, and those of its companion, Sebastian Edwards and Jeffrey A. Frankel's Preventing Currency Crises in Emerging Markets.

Foreign exchange rates --- Currency question --- Financial crises --- ASI / Asia - Azië - Asie --- NDC / Newly Industrialized Countries --- 333.481 --- 333.840 --- NBB congres --- -Foreign exchange rates --- -Financial crises --- -332.491724 --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Business cycles --- Exchange rates --- Fixed exchange rates --- Flexible exchange rates --- Floating exchange rates --- Fluctuating exchange rates --- Foreign exchange --- Rates of exchange --- Fiat money --- Free coinage --- Monetary question --- Scrip --- Currency crises --- Finance --- Finance, Public --- Legal tender --- Money --- Monetaire crisissen, hervormingen, saneringen en stabilisering. --- Verband tussen de économische groei en de geld-, bank-en kredietpolitiek: algemeenheden. Monetaire overwaardering en onderwaardering. --- Rates --- Conferences - Meetings --- Currency question - Developing countries. --- Currency question. --- Financial crises. --- Financial crises - Developing countries. --- Foreign exchange rates. --- Foreign exchange rates - Developing countries. --- 332.491724 --- Monetaire crisissen, hervormingen, saneringen en stabilisering --- Verband tussen de économische groei en de geld-, bank-en kredietpolitiek: algemeenheden. Monetaire overwaardering en onderwaardering --- E-books --- Foreign exchange rates - Developing countries --- Currency question - Developing countries --- Financial crises - Developing countries --- currency, emerging markets, economics, finance, international, global economy, public policy, financial crisis, recovery, economic growth, thailand, philippines, korea, asia, exchange rate, interest rates, speculative attack, defense, rescue packages, output losses, restructuring, sustainability, imf, stabilization, poverty, indonesia, price changes, nonfiction.