97 97 97 An Analysis of 97 Asian Crisis in Terms of Liquidity Aspect This paper focuses on one of the main elements, which cause the Asian Crisis in 997. much on the short-term foreign capital, is one of the main elements, which cause the liquidity crisis. 40
Some economists insist that the long-term investment fund should be procured through long-term financing. Nevertheless, there are some economists who insist that it is reasonable selection for such private firms to procure the fund for investment by means of short-term foreign capital. The reason is that if the foreign creditor would find the problem in the debtor s condition, the creditor could immediately withdraw their fund at the time of rollover in short-term lending. Thus, the debtor tries to make best efforts in their management not to cause such withdrawing. Therefore the short-term lending (rollover system) gives () the periodical process for supervision to the creditor, and (2) a motivation to make good management for the debtor. In this paper with relation to the above points, I try to discuss the followings; () rationality to use the short-term funds in procuring the investment funds (2) theoretical model analysis of excess default risk caused by over-investment by using the shortterm borrowing under the fixed foreign exchange rate system (3) the role of government which induces the private investment to the adequate level 997 97 97 4
42 972000 97 97twin financial crisisyoshitomi and Ohno999 Yoshitomi and Ohno999 97
Sachs997Radelet and Sachs99897 Chang and Velasco998999 Chang and VelascoDiamond and Dybvig983 Diamond and Dybvig983 Chang and Velasco Diamond and Dybvig Chang and Velasco Chang and Velasco 97 Chang and Velasco 97 Kawai and Liu200 gravity model GNP Gravity modelnewtonian physics2 GNP 2 43
0 9496 9798 97 Kawai and Liu Diamond and Rajan200b Caballero and Krishnamurthy 2000a 2000b Diamond and Rajan Caballero and Krishnamurthy Diamond and Rajan200b Diamond and Rajan200b Diamond and Rajan200b 0 5 Hart and Moore 994a 44
Diamond and Rajan2000 2000 45
0 FR ( ) ER ( ) = D S D S D S L F( L) + RdF( R) + DS [ F( DS) ]= L 0 46
FL ( ) FL ( ) FD ( S ) FD ( S ) D S 2 = S D S + DS + ( R D ) df( R) S [ S ] = RdF( R) D F( D ) DS S D S D S D S S D L D L RdF( R) + DL [ F( DL) ]= 0 D L FD ( L ) FD ( L ) D L D L D L D L + = ( R D ) df( R) L DL L L + = RdF( R) + L F( L) S L + = RdF( R) L 0 S L L L F( L) RdF( R) 0 S L 2 47
2 D L 97 D S Caballero and Krishnamurthy2000a 2000b Holmstrom and Tirole 998 Caballero and Krishnamurthy 3 Holmstrom and Tirole Caballero and KrishnamurthyHolmstrom and Tirole97 2 3 6 L = RdF( R) + B 0 + L 0 L F( L) RdF( R)+ B Holmstrom and Tirole998 48
Holmstrom and Tirole998 4 Caballero and Krishnamurthy 5 Caballero and Krishnamurthy 4 5 Caballero and Krishnamurthy 49
Caballero and Krishnamurthy Caballero and Krishnamurthy Caballero and Krishnamurthy C 2 50
C 2 6 C 2,, C 2 C 2 C 2 C 2 C 2 C 2 D N I N IN DN = IN A N = I ( C D + C ) A N N N 2 C 2 C 2 C 2 C 2 6 5
= I ( C + C ) C + C2 > 0 N D N D N N N I A N = C 2 I N D N C 2 C 2 EC ( ) = C C 2 EC ( 2 ) t= EC ( ) + EC ( 2) < EC ( ) + EC ( 2) EC ( ) 2 7 FC ( ) IU [ L F( DU) + DU ( F( DU)) ]= IU A FD ( U ) FD ( U ) 0 U = + + U IU ( C DU) df( C) ( F( DU)) DU EC + ( 2) CdFC ( ) 0 A 0 I U 7 L< <D 9 I A L I A U L t U I U 52
0 + = U IU + CdF( C) L F( DU) 0 + ( FD ( U )) EC ( 2 ) U = I E( C ) + L F( D ) U I U [ f( C ) EC ( ) + L FD ( ) + ( FD ( )) EC ( ) > 0 U U 2 EC ( ) 2 t U + ( FD ( U )) EC ( 2 ) ] 0 [ EC ( ) + L FD ( U) + ( FD ( U)) EC ( 2) ] D = IU [ E( C2 ) L] f( DU) I U 8 D 9 200 I U U 8 L LF [F ]L I U = A A L F D D F D > ( ) ( ( )) L U U U 7 9 Caballero and Krishnamurthy2000a 2000b 53
97 = DIIA I I = A < A = I + T C N r A ( + r) I + r C A ( + r) A ( + r) I + r C + r R + r C 54
97 Caballero, R., and A. Krishnamurthy (2000a), International Liquidity Management: Sterlization Policy in Illiquid Financial Markets, NBER Working Paper No.7740. Caballero, R., and A. Krishnamurthy (2000b), Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment, NBER Working Paper No.7792. Caballero, R., and A. Krishnamurthy (200a), International Liquidity Illusion: On the Risk of Sterlization, NBER Working Paper No.84. Caballero, R., and A. Krishnamurthy (200b), A Vertical Analysis of Crises and Intervention : Fear of Floating and Ex-ante Problems, NBER Working Paper No.8428. Chang, R. and A. Velasco (998a), Financial Crises in Emerging Market: A Canonical Model, NBER Working Paper No.6606. Chang, R. and A. Velasco (998b), The Asian Liquidity Crisis, NBER Working Paper No.6796. Diamond, D. W. (2000), Should Japanese Banks Be Recapitalized? Working Paper, University of Chicago. Diamond, D. W. and P. H. Dybvig (983), Bank Runs, Deposit Insurance, and Liquidity, Journal of Political Economy 9: 40-49. Diamond, D. W. and R. Rajan (2000), A Theory of Bank Capital, Journal of Finance 55: 243-2465. Diamond, D. W. and R. Rajan (200a), Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking, Journal of Political Economy 09. Diamond, D. W. and R. Rajan (200b), Banks, Short Term Debt, and Financial Crises: Theory, Policy Implications, and Applications, forthcoming, Carnegie-Rochester Conference Public Policy, 54. Freixas, X. and Rochet, J. C. (997), Microeconomics of Banking, The MIT Press Hart, O and J. Moore (994), A Theory of Debt Based on the Inalienability of Human Capital, Quarterly Journal of Economics 09: 84-879. Hart, O and J. Moore (994), Default and Renegotiation: A Dynamic Model of Debt, Quarterly Journal of Economics 3: -4. Holmstrom, B. and J. Tirole (997), Financial Intermediation, Loanable Funds, and the Real Sector, Quarterly 55
Journal of Economics 52: 663-692. Holmstrom, B. and J. Tirole (998a), Private and Public Supply of Liquidity, Journal of Political Economy, 06: -40. Holmstrom, B. and J. Tirole (998b), LAPM: A Liquidity-Based Asset Pricing Model, NBER Working Paper 6673. Holmstrom, B. and J. Tirole (999), Liquidity and Risk Management, mimeo. Kawai, K. and Liu, L. (200), Determinants of International Commercial Bank Loans to Developing Countries, mimeo. Kiyotaki, N. (998), Credit and Business Cycles, The Japanese Economic Review, 49:8-35 Kiyotaki, N. and J. Moore (997), Credit Cycles, Journal of Political Economy 05: 2-248. Kiyotaki, N. and J. Moore (998), Credit Chains, mimeo. Krugman, P. (979), A Model of Balanceof-Payments Crises, Journal of Money Credit and Banking, : 3-325. Krugman, P. (997), Currency Crises, Website. Krugman, P. (998), What Happened to Asia?, Website. Krugman, P. (999), Balance Sheets, the Transfer Problems, and Financial Crises, in International Finance and Financial Crises, Isard, Razin and Rose (eds.), Kluwer Academic Publishers. Obstfeld, M. (986), Rational and Self- Fulfilling Balance of Payments Crises, American Economic Review 76: 72-8 Qi, J. (998), Deposit Liquidity and Bank Monitoring, Journal of Financial Intermediation 7:98-28 Radelet, S. and Sachs, J. (998), The Onset of the East Asian Financial Crisis, NBER Working Paper 6680. Sachs, J. (997), IMF is a Power unto Itself, Financial Times, December. Shirai, S. (200), Searching for New Regulatory Frameworks for the Intermediate Financial Market Structure in Post-Crisis Asia, ADB Institute Research Paper 24. Yoshitomi, M. and Ohno, K. (999) Capital Account Crisis and Credit Contraction, ADB Institute Working Paper 2. Yoshitomi, M. and Shirai, S. (200), Designing a Financial Market Structure in Post-Crisis Asia, ADB Institute Working Paper 5. 999, Vol. No4:02-29 200, ASEAN 8: 4-30 999 IMF 2000, 2: 70-87 56