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A model of the interactions between banking crises and currency crises

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  • Bleaney, Michael
  • Bougheas, Spiros
  • Skamnelos, Ilias

Abstract

A second-generation model of currency crises is combined with a standard banking model. In a pegged exchange rate regime, after funds have been committed to the banks, news arrives about the quality of the banks' assets and about the exchange rate fundamentals. A run on the banks may cause a currency crisis, or vice versa. There are multiple equilibria (with either twin crises or no crisis), depending on depositors' expectations of other depositors' actions. Suspension of deposit convertibility can prevent a speculative attack on the currency, but last resort lending to solvent banks can induce one.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 5 (September)
Pages: 695-706

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:5:p:695-706

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Web page: http://www.elsevier.com/locate/inca/30443

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Cited by:
  1. Aidi, Wafa, 2013. "Optima exchange crisis regression and twin crisis: Evidences for some MENA countries," Economic Modelling, Elsevier, vol. 33(C), pages 306-311.
  2. International Monetary Fund, 2010. "Post-Crisis Bank Behavior," IMF Working Papers 10/1, International Monetary Fund.

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