Banking Sector Fragility and the Transmission of Currency Crises |
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| Authors: | Allard Bruinshoofd Bertrand Candelon Katharina Raabe |
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| Institution: | (1) Department of Macroeconomics Research, Rabobank Nederland, Utrecht, The Netherlands;(2) Department of Economics, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands;(3) International Food Policy Research Institute, New Delhi, India;; |
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| Abstract: | We assess whether, complementary to trade and financial linkages, banking sector fragility helps explain the transmission
of currency crises. We attempt to strike a balance between the precision of measurement of banking sector fragility on the
one hand and its consistent measurement across various crisis episodes on the other. We find that while the role of trade
and financial linkages is robust over time, the independent role of banking sector fragility is rather weak and unstable across
crisis episodes. Consequently it is difficult to extrapolate observed banking fragility transmission channels from one crisis
to another. As a corollary we cannot conclude that during future crisis episodes economies characterized by fragile banking
sectors are more prone to crisis transmission. |
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