Emerging-economy crisis cycle may have ended, but...
Bogota
Crises are nothing new for emerging economies, which have repeated the same patterns again and again, with often-devastating results. But have those patterns finally been broken?
Emerging economies have experienced boom-bust cycles in external financing for decades. The boom phase generates current-account, fiscal, and private-sector deficits - outcomes that are compounded by increases in domestic financing.
Eventually, however, high debt levels lead to a loss of confidence and sharp cuts in external financing - a so-called sudden stop - producing balance-of-payments, fiscal, and financial crises.
Then, contagion sets in, as increasingly risk-averse investors, particularly short-term investors from developed-country markets, begin to withdraw funds from other countries to cover losses they incurred in the economies where the crises originated. With that, the crises s…
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