Models of Financial Crises and the ‘Boom’ of Financial Crises in Transition Countries

Financial vulnerability became a much-studied topic in recent years. The Mexican crisis of 1994–5 reinvigorated interest in developing country capital market crises, and the 1997 events in East Asia widened the range of possible causes and mechanisms. The Russian crisis of 1998 brought the issue especially close to the transition countries in Central and Eastern Europe, where exchange rate, banking and stock market upheavals have been quite frequent. Countries with a view towards joining the Economic and Monetary Union (EMU) must regard vulnerability to crises as one of their most important concerns, since preconditions of candidature explicitly require that violent movements in certain financial variables, such as exchange and interest rates, do not occur.