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An eclectic third generation model of financial and exchange rate crises

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  • Joaquin Novella Izquierdo
  • Joan Ripoll i Alcon

    (Universitat de Barcelona)

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    Abstract

    This paper presents an eclectic model that systematizes the dynamics of self-fulfilling crises, using the main aspects of the three typologies of third generation models, to describe the stylized facts that hasten the withdrawal of a pegged exchange rate system. The most striking contributions are the implications for economic policy as well the vanishing role of exchange rate as an instrument of macroeconomic adjustment, when balance-sheet effects are a real possibility.

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    File URL: http://www.ere.ub.es/dtreball/E08196.rdf/at_download/file
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    Bibliographic Info

    Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 196.

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    Length: 32 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:bar:bedcje:2008196

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    Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
    Web page: http://www.ere.ub.es
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    1. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    2. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "Paper tigers? A model of the Asian crisis," Research Paper 9822, Federal Reserve Bank of New York.
    3. V. V. Chari & Patrick J. Kehoe, 2000. "Financial crises as herds," Working Papers 600, Federal Reserve Bank of Minneapolis.
    4. Andrew Berg, 1999. "The Asia Crisis - Causes, Policy Responses and Outcomes," IMF Working Papers 99/138, International Monetary Fund.
    5. Andres Velasco & Roberto Chang, 2000. "Exchange-Rate Policy for Developing Countries," American Economic Review, American Economic Association, vol. 90(2), pages 71-75, May.
    6. Ricardo J. Caballero & Arvind Krishnamurthy, 2003. "Excessive Dollar Debt: Financial Development and Underinsurance," Journal of Finance, American Finance Association, vol. 58(2), pages 867-894, 04.
    7. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
    8. Martin Schneider & Aaron Tornell, 2004. "Balance Sheet Effects, Bailout Guarantees and Financial Crises," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 883-913, 07.
    9. Philippe AGHION & Philippe BACCHETTA & Abhijit BANERJEE, 1999. "A Simple Model of Monetary Policy and Currency Crises," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9914, Université de Lausanne, Faculté des HEC, DEEP.
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