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A model of the interactions between banking crises and currency crises

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  • Bleaney, Michael
  • Bougheas, Spiros
  • Skamnelos, Ilias

Abstract

A second-generation model of currency crises is combined with a standard banking model. In a pegged exchange rate regime, after funds have been committed to the banks, news arrives about the quality of the banks' assets and about the exchange rate fundamentals. A run on the banks may cause a currency crisis, or vice versa. There are multiple equilibria (with either twin crises or no crisis), depending on depositors' expectations of other depositors' actions. Suspension of deposit convertibility can prevent a speculative attack on the currency, but last resort lending to solvent banks can induce one.

Suggested Citation

  • Bleaney, Michael & Bougheas, Spiros & Skamnelos, Ilias, 2008. "A model of the interactions between banking crises and currency crises," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 695-706, September.
  • Handle: RePEc:eee:jimfin:v:27:y:2008:i:5:p:695-706
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    References listed on IDEAS

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    Cited by:

    1. Spiros Bougheas & Hosung Lim & Simona Mateut & Paul Mizen & Cihan Yalcin, "undated". "Lessons from the Asian Crisis: An Open Economy Credit Channel Model where Export Status Matters," Discussion Papers 12/16, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. Ryota Nakatani, 2016. "Twin Banking and Currency Crises and Monetary Policy," Open Economies Review, Springer, vol. 27(4), pages 747-767, September.
    3. Aidi, Wafa, 2013. "Optima exchange crisis regression and twin crisis: Evidences for some MENA countries," Economic Modelling, Elsevier, vol. 33(C), pages 306-311.
    4. Sarah Sanya & Montfort Mlachila, 2010. "Post-Crisis Bank Behavior; Lessons From Mercosur," IMF Working Papers 10/1, International Monetary Fund.

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