This chapter attempts to bring together much of the material covered in the rest of the book by analyzing the links among currency crises, sovereign debt crises, and banking crises in emerging economies, both analytically and by conducting case studies of both the 1994 Mexican and 1997 Asian crises. These more recent crises are contrasted with the fiscally driven international debt crisis of the 1980s that we discussed in Chapter 25 and are compared to the 1982 Chilean financial crisis that has been mentioned at various places in the book. The objective of this chapter is to illustrate how the three general topics treated in this book – fiscal and monetary management, management of the exchange rate, and management of the financial system – lie at the heart of the most severe macroeconomic crises that developing countries have faced over the past two decades.

The structure of the chapter is as follows. We begin in Section I with a brief review of the traditional analytics of currency crises, a type of financial crisis that we have discussed at various points in the book but have not treated separately up to now. In Section II, we broaden the analytical discussion to include liquidity crises, or “sudden stops” of capital inflows. These have figured prominently in recent emerging-market crises, but they were not featured in the traditional currency-crisis literature until recently. As we will see, these liquidity crises involve interactions among debt, banking, and currency problems.