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Government finance in the wake of currency crises

  • Burnside, Craig
  • Eichenbaum, Martin
  • Rebelo, Sergio

This paper addresses two questions: (i) how do governments actually pay for the fiscal costs associated with currency crises; and (ii) what are the implications of different financing methods for post-crisis rates of inflation and depreciation? We study these questions using a general equilibrium model in which a currency crisis is triggered by prospective government deficits. We then use our model in conjunction with fiscal data to interpret government financing in the wake of three recent currency crises: Korea (1997), Mexico (1994) and Turkey (2001).

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 53 (2006)
Issue (Month): 3 (April)
Pages: 401-440

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Handle: RePEc:eee:moneco:v:53:y:2006:i:3:p:401-440
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