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This study analyzes drops in East Asian investment and their determinants after the 1997-1998 Asian financial crisis. We first employ a random level-shift autoregressive model to quantify the shift in investment ratios of four Asian economies hit by the 1997-1998 Asian financial crisis: Indonesia, Korea, Malaysia, and Thailand. We trace the major historical shifts in the levels of investment ratios and we find that the cumulated downward shifts in investment ratios during 1997-1998 for Indonesia, Korea, Malaysia, and Thailand are 6, 5, 14, and 14 percentage points, respectively. The investment ratios of most countries experienced several rebounds between 1999 and 2001, but the rebounds were too small to bring investment ratios back to their pre-1990 levels. Having identified the episodes of investment shifts, the Bayesian Model Averaging (BMA) and several robust tests are employed to investigate the determinants of those level shifts in investment ratios. We find that real per capita gross domestic product growth and banking crises are the two most important factors contributing to shifts iii the investment levels of these four crisis-hit Asian economies. The results are useful in understanding the causes and remedies of global imbalances. (jEL C11, E22, F32, 053), I. INTRODUCTION Previous studies suggest three factors that help to explain the emergence of global imbalances: swings in the saving-investment gap in East Asian economies, financial sector imperfections in emerging [...]

This article develops an index of money market pressure to identify banking crises. We define banking crises as periods in which there is excessive demand for liquidity in the money market. We begin with the theoretical foundation of this new method. With the newly defined crisis episodes, we examine the determinants of banking crises using data complied from 47 countries. We find that slowdown of real GDE lower real interest rates, extremely high inflation, large fiscal deficits, and over-valued exchange rates tend to precede banking crises. The effects of monetary base growth on the probability of banking crises are negligible. JEL codes: C43, E44, G21 Keywords: identification of banking crises, events method, index of money market pressure, conditional logit model., THE FINANCIAL CRISES of the past decade and the IMF's initiative to build an early warning system against such crises have stimulated a wave of research into the empirical determinants [...]

This research explores the question of which exchange rate regime would bring about better output and price stability, given the initial conditions and the external shocks facing Argentina's economy in 2001–2002. Our analytical model incorporates a transmission mechanism, the balance‐sheet effects, which formulates the possible interaction between foreign debt and exchange rate policy. We find that a floating exchange rate that depends on external finance outperforms dollarization, after supposing the amount of foreign debt payments is limited. As the relative performance of alternative exchange rate arrangements depends on the foreign debt payments, our empirical results imply that the restructuring of foreign debt should be an integral part of any negotiation concerning the postcrisis exchange rate regime. Our results also show that with the existence of foreign debt, the policy trade‐off implied by the Trilemma becomes much constrained. [ABSTRACT FROM AUTHOR]