Hot Money in Emerging Markets

Open Access
Author:
Almani, Labeed
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Russell Wade Cooper, Thesis Supervisor
  • Russell Paul Chuderewicz, Honors Advisor
Keywords:
  • Hot Money
  • Currency Crises
  • Balance of Payments
  • Trilemma
  • Cagan Model
Abstract:
Economic globalization has made national economies susceptible to unpredictable and rapid short-term capital inflows and outflows. This phenomenon, called Hot Money, is the major subject of the paper. The paper focuses on the development of a theoretical model pertinent to the phenomenon. Chapter 1 provides an overview of the topic and the motivation behind the investigation. In Chapter 2, we review the existent literature regarding Hot Money and continue further to review the litera- ture related specifically to the model. Chapter 3 focuses in the effects of financial liberalization on developing countries including the risks and proven benefits. Chapter 4 reviews the literature about Hot Money issues in China while Chapter 5 continues the discussion through the analysis of strate- gies used in controlling hot money influx in the country. Chapter 6 analyzes the historical crises in Mexico, Thailand, and Russia. Chapter 7, which is the major focus on the paper, entails the derivation of the theoretical model. The model developed supports the proposition that financial liberalization in the presence of fixed foreign exchange regime and weak monetary/fiscal policies culminates in a crises instigated by the draining of foreign reserves. We conclude in Chapter 8. Chapters 9 and 10 include an appendix to calculating hot money and bibliography, respectively.