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How Can Fiscal Policy Help Avert Currency Crises?

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  • George Kopits

Abstract

An overview of crisis episodes in emerging-market economies with a pegged exchange rate regime in the 1990s suggests that sizable explicit or implicit government deficits, or market perceptions of lack of fiscal sustainability, render these economies vulnerable to currency crises under high capital mobility. It is argued in the paper that vulnerability to crisis can be mitigated by signaling a phased fiscal adjustment that involves credible implementation of key structural measures. In particular, fiscal policy rules, such as the ones being adopted in a number of emerging-market economies, constitute a potentially useful tool of crisis prevention.

Suggested Citation

  • George Kopits, 2000. "How Can Fiscal Policy Help Avert Currency Crises?," IMF Working Papers 00/185, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/185
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    Cited by:

    1. Ramkishen S. Rajan, 2007. "Managing new-style currency crises: the swan diagram approach revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(5), pages 583-606.
    2. Jürgen von Hagen & Iulia Siedschlag, 2010. "Managing Capital Flows: Experiences from Central and Eastern Europe," Chapters,in: Managing Capital Flows, chapter 7 Edward Elgar Publishing.
    3. Garima Vasishtha & Taimur Baig & Manmohan S. Kumar & Edda Zoli, 2006. "Fiscal and Monetary Nexus in Emerging Market Economies; How Does Debt Matter?," IMF Working Papers 06/184, International Monetary Fund.
    4. Pritha Mitra, 2006. "Post-Crisis Recovery; When Does Increased Fiscal Discipline Work?," IMF Working Papers 06/219, International Monetary Fund.
    5. de Mendonça, Helder Ferreira & Machado, Marcelo Rangel, 2013. "Public debt management and credibility: Evidence from an emerging economy," Economic Modelling, Elsevier, vol. 30(C), pages 10-21.

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