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Government Finance in the Wake of Currency Crises

  • Craig Burnside
  • Martin Eichenbaum

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 Society for Economic Dynamics in its series 2005 Meeting Papers with number 429.

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Date of creation: 2005
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Handle: RePEc:red:sed005:429
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  1. Morris, Stephen, 1995. "Inflation dynamics and the parallel market for foreign exchange," Journal of Development Economics, Elsevier, vol. 46(2), pages 295-316, April.
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  32. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
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