ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Financial Crises, Reserve Accumulation and Capital Flows

The article constructs a theory to understand a financial crisis in an open third world economy in the context of a sequence of stock equilibria, ensured by inelastic expectations. It then explores the predicament of such an economy when it "opens up" to global financial flows. In the absence of central bank intervention it has to face financial crises. But central bank intervention aimed at avoiding financial crises by stabilising the exchange rate and holding foreign exchange reserves pushes the economy to a perennial stock disequilibrium.

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