An empirical and institutional examination of post-crisis capital flows—Thailand case

In this paper, we developed and estimated a model of the Thai firm during the crisis. Our results indicate that firms with the highest debt-equity ratios suffered the steepest declines in earnings per share during the crisis from the financial distressed costs. We take this result as strong evidence for the credit channel. Surprisingly, firms with the largest market capitalizations suffered more than the smaller firms owing to their capital structure and financial leverage effect. We also witness asymmetric impact between the industries—exporters, importers and intermediate. We take this as evidence of different scale-effects on different industries, a feature that we do not explicitly model. In other words, the production effect is more pronouncing in import related industries than the export-oriented one. Note that firms that import intermediate goods also suffered greatly from the crisis from both credit and production channels. Taken together, our overall results indicate that the crisis damaged the earnings per share of firms more on credit channels than the production channels. There exists a peculiar tradeoff between benefits from currency devaluation to promote exports and severe adverse impact on both credit channel and asymmetric impact on production channel.     

Modelling the Credit Spreads and Long–Term Relationships of Thai Yankee Bond Issues

The present study investigates the yield spread between Thai government bonds issued in the US domestic market ('Yankee' bonds) and US Treasury bonds, to determine the long–term equilibrium dynamics and the factors that affect changes in credit spreads. The sample period investigated was from May 5, 1999 to March 26, 2002. The results suggest that the long–term equilibrium relationship holds only between Thai Yankee bonds and long–term US bonds, rather than shorter or equivalent maturity bonds. Also, changes in the credit spreads of Thai Yankee bonds are generally negatively related to changes in the Stock Exchange of Thailand (SET) index (see http://www.set.or.th/th/index.html). Changes in US Treasury bonds also tend to negatively affect spreads on short Thai Yankee bonds and positively affect spreads on long Thai Yankee bonds, although other macroeconomic factors – including exchange rate and capital flow variables – were generally not important.     

Asset Bubbles, Leverage and 'Lifeboats': Elements of the East Asian Crisis

Collapsing credit markets have been blamed for the depth and persistence of the Great Depression in the United States. Could similar mechanisms have played a role in ending the East Asian economic miracle – and in creating fragility in global financial markets? After a brief account of the nature of the East Asian crises of 1997/8, we use the framework of highly-leveraged, fully-collaterised firms due to Kiyotaki and Moore (1997) to explore the impact of a credit crunch. The paper emphasises the fragility of equilibrium and how rapidly boom can turn to bust.