Public Debt Maturity and Currency Crises
AbstractThis paper provides a theoretical and empirical examination of the e®ect of debt structure on the probability of a currency crisis and the slope of the yield curve. We employ an open-economy version of the Barro-Gordon model with public debt, as in Benigno and Missale (2004) and generalize the analysis to allow for the case where the monetary authority can fully commit itself to an escape clause monetary rule. Comparing the latter with the discretionary outcomes motivates the asymmetric information game where the signalling e®ect of defending the parity competes with the fundamentals of the debt burden. Two key predictions of the model are tested with positive results.
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Bibliographic InfoPaper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0406.
Length: 30 pages
Date of creation: Mar 2006
Date of revision:
Currency crisis; debt management;
Other versions of this item:
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-01 (All new papers)
- NEP-CBA-2006-04-01 (Central Banking)
- NEP-FMK-2006-04-01 (Financial Markets)
- NEP-MAC-2006-04-01 (Macroeconomics)
- NEP-MON-2006-04-01 (Monetary Economics)
- NEP-PBE-2006-04-01 (Public Economics)
- NEP-SEA-2006-04-01 (South East Asia)
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