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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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  7. Easterly, William & Schmidt-Hebbel, Klaus, 1991. "The macroeconomics of public sector deficits : a synthesis," Policy Research Working Paper Series 775, The World Bank.
  8. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "On the Fiscal Implications of Twin Crises," NBER Working Papers 8277, National Bureau of Economic Research, Inc.
  9. Corsetti, G. & Mackowiak, B., 2000. "Nominal Debt and the Dynamics of Currency Crises," Papers 820, Yale - Economic Growth Center.
  10. Calvo, Guillermo A, 1987. "Balance of Payments Crises in a Cash-in-Advance Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 19-32, February.
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