This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Interactions between Debt and Currency Crises – Common Causes or Contagion?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Bernhard Herz ()
Hui Tong ()

Additional information is available for the following registered author(s):

Abstract

In contrast to the well-known twin currency and banking crises the literature has so far neglected a second type of twin crises, the simultaneous occurrence of currency and debt crises. The decision of a government to devalue and/or to default is closely interlinked through the government’s intertemporal budget constraint. In our empirical analysis we find some evidence that one-year lagged debt crisis strongly Granger causes currency crisis and two-year lagged currency crisis weakly Granger causes debt crisis. We find strong evidence that debt and currency crises have common fundamental causes. Low reserve over imports ratio, low domestic GDP growth rate, and low FDI over external debt ratio all increase the likelihood of debt and currency crises.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.old.uni-bayreuth.de/departments/rw/lehrstuehle/vwl3/Workingpapers/WP_17-03.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Article provided by Department of Economics, Economics I, Bayreuth University in its journal Macroeconomics.

Volume (Year): ()
Issue (Month): ()
Pages:
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:uba:hadfwe:currcrisis-ht_2003-12

Contact details of provider:
Postal: Universit�tsstra�e 30, 95447 Bayreuth
Phone: (0921) 55-2913
Fax: (0921) 55-2949
Web page: http://www.giw.uni-bayreuth.de
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Christian Bauer).

Related research
Keywords: Currency crisis; debt crisis; panel data; developing countries;

Other versions of this item:

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rose, Andrew K, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," CEPR Discussion Papers 3157, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Craig Burnside & Martin Eichenbaum & Sergio T. Rebelo, 2001. "On the Fiscal Implications of Twin Crises," RCER Working Papers 482, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
    Other versions:
  3. Chang, R. & Velasco, A., 1999. "Liquidity Crises in Emerging Markets: Theory and Policy," Working Papers 99-14, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  4. Masson, Paul, 1999. "Contagion:: macroeconomic models with multiple equilibria," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 587-602, August. [Downloadable!] (restricted)
  5. Joshua Aizenman & Kenneth M. Kletzer & Brian Pinto, 2005. "Sargent-Wallace meets Krugman-Flood-Garber, or: why sovereign debt swaps do not avert macroeconomic crises," Economic Journal, Royal Economic Society, vol. 115(503), pages 343-367, 04. [Downloadable!] (restricted)
    Other versions:
  6. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August. [Downloadable!] (restricted)
  7. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November. [Downloadable!] (restricted)
    Other versions:
  8. Benigno, Pierpaolo & Missale, Alessandro, 2004. "High public debt in currency crises: fundamentals versus signaling effects," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 165-188, March. [Downloadable!] (restricted)
    Other versions:
  9. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
  10. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Velasco, Andres, 1987. "Financial crises and balance of payments crises : A simple model of the southern cone experience," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 263-283, October. [Downloadable!] (restricted)
  12. Bernhard Herz, . "The Logic of Twin Debt and Currency Crises," Macroeconomics, Department of Economics, Economics I, Bayreuth University.
  13. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany. [Downloadable!]
  14. Giancarlo Corsetti & Bartosz Mackowiak, 2000. "Nominal Debt and the Dynamics of Currency Crises," Working Papers 820, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  15. Rudi Dornbusch, 1996. "Debt and Monetary Policy: The Policy Issues," NBER Working Papers 5573, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August. [Downloadable!] (restricted)
  17. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," World Bank Economic Review, Oxford University Press, vol. 16(2), pages 151-170, August.
    Other versions:
  18. Giavazzi, Francesco & Pagano, Marco, 1989. "Confidence Crises and Public Debt Management," CEPR Discussion Papers 318, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  19. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  20. Andrew K. Rose & Mark M. Spiegel, 2002. "A gravity model of sovereign lending: trade, default and credit," Working Papers in Applied Economic Theory 2002-09, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  21. Amadou N. R. Sy, 2003. "Rating the Rating Agencies: Anticipating Currency Crises or Debt Crises," IMF Working Papers 03/122, International Monetary Fund. [Downloadable!]
    Other versions:
  22. Dooley, Michael P, 2000. "A Model of Crises in Emerging Markets," Economic Journal, Royal Economic Society, vol. 110(460), pages 256-72, January. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Axel Dreher & Bernhard Herz & Volker Karb, 2006. "Is there a causal link between currency and debt crises?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 305-325. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? You may want to explore EconPapers, which displays the same data as IDEAS in a different way.

This page was last updated on 2009-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.