Private Capital Flows in East Asia: Boom, Bust and Beyond

CIES Working Paper No. 0039

53 Pages Posted: 31 Oct 2000

Date Written: September 2000

Abstract

The third generation genre of currency crises models that have been popularized following the recent crises inemerging economies give prominence to the capital account. Hence, they are also commonly referred to as 'capital crisis models'. These models provide the theoretical rationale and motivation for examining the capital account transactions of the five crisis-hit economies in East Asia. Relying on data on international capital flows from a fairly diverse set of multilateral sources (i.e. IMF, BIS and IIF), this paper reviews and analyzes the nature and dynamics of international capital flows in the crisis hit East Asian economies in general during the pre-crisis boom period (between 1990 and 1996), as well as the bust and eventual recovery that followed (1997 to early 2000). The data indicate that the recent rebound in regional growth rates, surges in equity prices and stabilization of exchange rates have been accompanied primarily by a resurgence in portfolio capital inflows. Motivated by these facts and guided by a specific informational frictions model of portfolio flows, an array of simple but indicative statistical tests (correlation and causality) are conducted on available time series data to explore the determinants of private portfolio capital flows to the regional economies.

Keywords: bank lending, bank panic, bonds, capital flows, currency crisis, East Asia, equities

JEL Classification: F30, F32, F41

Suggested Citation

Rajan, Ramkishen S. and Siregar, Reza, Private Capital Flows in East Asia: Boom, Bust and Beyond (September 2000). CIES Working Paper No. 0039, Available at SSRN: https://ssrn.com/abstract=248307 or http://dx.doi.org/10.2139/ssrn.248307

Reza Siregar

University of Adelaide ( email )

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