Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises / Guillermo A. Calvo, Alejandro Izquierdo, Ernesto Talvi.

By:

Calvo, Guillermo A

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w12101.Publication details: Cambridge, Mass. National Bureau of Economic Research 2006.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: Using a sample of emerging markets that are integrated into global bond markets, we analyze theAbstract: collapse and recovery phase of output collapses that coincide with systemic sudden stops, defined as periods of skyrocketing aggregate bond spreads and large capital flow reversals. Our findings indicate the presence of a very similar pattern across different episodes: output recovers with virtually no recovery in either domestic or foreign credit, a phenomenon that we call Phoenix Miracle, where output "rises from its ashes", suggesting that firms go through a process of financial engineering to restore liquidity outside the formal credit markets. Moreover, we show that the US Great Depression could be catalogued as a Phoenix Miracle. However, in contrast to the US Great Depression, EM output collapses occur in a context of accelerating price inflation and falling real wages, casting doubts on price deflation and nominal wage rigidity as key elements in explaining output collapse, and suggesting that financial factors are prominent for understanding these collapses.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w12101 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

March 2006.

Using a sample of emerging markets that are integrated into global bond markets, we analyze the

collapse and recovery phase of output collapses that coincide with systemic sudden stops, defined as periods of skyrocketing aggregate bond spreads and large capital flow reversals. Our findings indicate the presence of a very similar pattern across different episodes: output recovers with virtually no recovery in either domestic or foreign credit, a phenomenon that we call Phoenix Miracle, where output "rises from its ashes", suggesting that firms go through a process of financial engineering to restore liquidity outside the formal credit markets. Moreover, we show that the US Great Depression could be catalogued as a Phoenix Miracle. However, in contrast to the US Great Depression, EM output collapses occur in a context of accelerating price inflation and falling real wages, casting doubts on price deflation and nominal wage rigidity as key elements in explaining output collapse, and suggesting that financial factors are prominent for understanding these collapses.