Academic Views of Capital Flows: An Expanding Universe

Recent crises in emerging markets have generated a fundamental re-appraisal of theoretical models of international capital flows. It is now generally recognised that crises have occurred in circumstances that cannot be explained by first generation models of speculative attacks that seemed quite acceptable only a few years ago. First generation models (Krugman 1979; Flood and Garber 1980) and their descendants dominated thinking about capital flows and crises partly because they explained several important features of balance of payments crises based on very simple behavioural assumptions about governments and private investors.