Emerging Capital Markets in Turmoil

Emerging Capital Markets in Turmoil

Bad Luck or Bad Policy?

By Guillermo A. Calvo

Analysis of financial crises in emerging market economies, including Mexico, Argentina, and Russia; traces the evolution of crisis theory and challenges the conventional wisdom.





Analysis of financial crises in emerging market economies, including Mexico, Argentina, and Russia; traces the evolution of crisis theory and challenges the conventional wisdom.

Since the mid-1990s, emerging market economies have been hit by dramatic highs and lows: lifted by large capital inflows, then plunged into chaos by constrained credit and out-of-control exchange rates. The conventional wisdom about such crises is strongly influenced by the experience of advanced economies. In Emerging Capital Markets in Turmoil, Guillermo Calvo examines these issues instead from the perspective of emerging market economies themselves, taking into account the limitations and vulnerabilities these economies confront. A succession of crises—Mexico in 1994-5, East Asia in 1997, Russia in 1998, and Argentina in 2001—prompted an urgent search in economic policy circles for cogent explanations. Calvo begins by laying the groundwork for a new approach to these issues. In the theoretical chapters that follow, he argues that financial crisis theory regarding emerging markets has progressed from focusing on such variables as fiscal deficits, debt sustainability, and real currency devaluation to stressing the role of the financial sector—emphasizing stocks rather than flows as well as the role credibility plays in containing financial crises. He then returns to a more empirical analysis and focuses on exchange-rate issues, considering the advantages and disadvantages of flexible exchange rates for emerging market economies. Coming after a decade of ongoing crises, Calvo's timely reassessment of the importance of external factors in making emerging market economies safer from financial turmoil offers important policy lessons for dealing with inevitable future episodes of financial crises.


Out of Print ISBN: 9780262033343 562 pp. | 6 in x 9 in


$40.00 X ISBN: 9780262529549 562 pp. | 6 in x 9 in


  • A deeply thoughtful and engaging collection of essays from a justly celebrated academic economist and policymaker who, for seven years as #2 at the International Monetary Fund, flew into the eye of the greatest international financial storms of the modern era.

    Kenneth S. Rogoff

    Thomas D. Cabot Professor of Public Policy, Department of Economics, Harvard University

  • Over the past 15 years international financial flows have expanded at a dizzying pace. Despite suffering dramatic crises with occasional worldwide repercussions, emerging markets now play a central role in the workings of the new global capital market. Guillermo A. Calvo has been at the forefront in analyzing and, in many cases, predicting these developments. This new collection of essays brings together his many landmark contributions on the economics of emerging markets. Every serious student of the inernational macroeconomy will want to study this book.

    Maurice Obstfeld

    Class of 1958 Professor of Economics, University of California, Berkeley

  • This book represents Guillermo A. Calvo's work at its best. It combines a deep understanding of the events and factors involved in ermerging markets' struggle with capital flow volatility, an unmatched ability to isolate and illuminate the essence of the phenomena in question, and an exciting irreverence towards misguided conventional wisdom. Essential for anyone interested in emerging markets and, more broadly, in connecting insightful theories with reality.

    Ricardo J. Caballero

    Ford International Professor of Economics, MIT

  • Guillermo A. Calvo not only thinks outside the box, he develops highly useful models there, as theses papers on contagion, sudden stops, and what to do about them so wonderfully demonstrate. You cannot doe ffective policy work, let alone research, in international finance without the benefit of ideas like the ones in this thoughtful and well-organized collectionl.

    John B. Taylor

    Stanford University