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Government Finance in the Wake of Currency Crises

  • Burnside, Craig
  • Eichenbaum, Martin
  • Rebelo, Sérgio

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3939.

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Date of creation: Jun 2003
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Handle: RePEc:cpr:ceprdp:3939
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  31. John H. Cochrane, 1998. "Long-term Debt and Optimal Policy in the Fiscal Theory of the Price Level," CRSP working papers 478, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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