What Might the Next Emerging-Market Financial Crisis Look Like?

Working Paper

with the assistance of Anna Wong, Institute for International Economics

July 2005

If there were a new emerging-market financial crisis, how would it start and spread, and which economies would be most vulnerable? Goldstein concludes that a parallel growth slowdown in China and the United States, along with deterioration in global financial conditions linked to a disorderly correction of global payments imbalances, could put a group of emerging markets on the threshold of crisis. He gauges the vulnerability of individual emerging economies to various shocks: a slowdown in import demand in both China and the United States, a fall in primary commodity prices, increased costs and lower availability of external financing, alternative patterns of exchange rate changes, and pressures on monetary and fiscal policies.