Reconciling the Two Views

Michael Chui and Prasanna Gai

in Private Sector Involvement and International Financial Crises

Published in print January 2005 | ISBN: 9780199267750
Published online July 2005 | e-ISBN: 9780191602504 | DOI:
Reconciling the Two Views

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Articulates the basics of global games. Applies the global game arguments of Morris and Shin (1998, 2000) to sovereign liquidity crises and shows how the fundamental and sunspot views of crisis can be reconciled. Highlights the welfare costs of coordination failure and explores how policy options such as sovereign debt standstills, liquidity management, and capital controls may help mitigate these costs.

Keywords: capital controls; coordination failure; global games; liquidity management; sovereign debt standstill; sovereign liquidity crises; sunspot view of crisis

Chapter.  4642 words.  Illustrated.

Subjects: Financial Markets

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