Public debt and currency crisis: how central bank opacity can make things bad?

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Public debt and currency crisis: how central bank opacity can make things bad?

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Dai, Meixing

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Meixing Dai

Abstract

This paper examines how the transparency in monetary policy decision can impact the likelihood of currency crisis in a simple open economy model with public debt. In the presence of opacity, it is found that if the debt is high, the government will devaluate and vice versa, and the self-fulfilling multiple equilibria solution disappears. Furthermore, the opacity reduces the threshold of public debt above which the government is considered as totally lacking the credibility in its pre-commitment to maintain fixed the exchange rate.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13867.

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Date of creation: Dec 2008
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Publication status: Published in Economics Bulletin 1 .29(2009): pp. 190-198
Handle: RePEc:pra:mprapa:13867

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Find related papers by JEL classification:
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation
O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F31 - International Economics - - International Finance - - - Foreign Exchange

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-03-14 (All new papers)
NEP-CBA-2009-03-14 (Central Banking)
NEP-MON-2009-03-14 (Monetary Economics)

References listed on IDEAS
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