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Hedging and Financial Fragilities in Fixed Exchange Rate Regimes

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Author Info

  • Burnside, C.
  • Eichenbaum, M.
  • Rebelo, S.

Abstract

Currency crises that coincide with banking crises tend to share four elements. First, governments provide guarantees to domestic and foreign bank creditors. Second, banks do not hedge their exchange rate risk. Third, there is a lending boom before the crises. Finally, when the currency/banking collapse occurs interest rates rise and there is a persistent decline in output. This paper proposes an explanation for these regularities.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_461.pdf
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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 461.

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Length: 57 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:roc:rocher:461

Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

Related research

Keywords: BANKS ; EXCHANGE RATE ; FINANCIAL MARKET;

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Cited by:
  1. Galindo, Arturo & Panizza, Ugo & Schiantarelli, Fabio, 2003. "Debt composition and balance sheet effects of currency depreciation: a summary of the micro evidence," Emerging Markets Review, Elsevier, Elsevier, vol. 4(4), pages 330-339, December.

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