On the Fiscal Implications of Twin Crises
This paper explores the implications of different strategies for financng the fiscal costs of twin crises for inflation and depreciation rates. We use a first-generation type model of speculative attacks which has four key features: (i) the crisis is triggered by prospective deficits; (ii) there exists outstanding non-indexed government debt issued prior to the crisis; (iii) a portion of the government's liabilities are not indexed to inflation; (iv) there are nontradeable goods and costs of distributing tradeable goods, so that the purchasing power parity does not hold. We show that the model can account for the high rates of devaluation and the moderate rates of inflation often observed in the wake of currency crises. We use our model and the data to interpret the recent currency crises in mexico and Korea. Our analysis suggests that the Mexican government is likely to pay for the bulk of the fiscal costs of its crisis through seignorage revenues. in contrast, the Korean government is likely to rely more on a combination of implicit and explicit fiscal reforms.
|Date of creation:||May 2001|
|Date of revision:|
|Contact details of provider:|| Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Willem H. Buiter, 1986.
"Borrowing to Defend the Exchange Rate and the Timing and Magnitude of Speculative Attacks,"
NBER Working Papers
1844, National Bureau of Economic Research, Inc.
- Buiter, Willem H., 1987. "Borrowing to defend the exchange rate and the timing and magnitude of speculative attacks," Journal of International Economics, Elsevier, vol. 23(3-4), pages 221-239, November.
- Buiter, Willem H., 1986. "Borrowing to Defend the Exchange Rate and the Timing and Magnitude of Speculative Attacks," CEPR Discussion Papers 95, C.E.P.R. Discussion Papers.
- Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001.
"Prospective Deficits and the Asian Currency Crisis,"
Journal of Political Economy,
University of Chicago Press, vol. 109(6), pages 1155-1197, December.
- Burnside, Craig & Eichenbaum, Martin & Rebelo, Sérgio, 1998. "Prospective Deficits and the Asian Currency Crises," CEPR Discussion Papers 2015, C.E.P.R. Discussion Papers.
- Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1999. "Prospective deficits and the asian currency crisis," Policy Research Working Paper Series 2174, The World Bank.
- Burnside, C. & Eichenbaum, M. & Rebelo, S., 1998. "Prospective Deficits and the Asian Currency Crisis," RCER Working Papers 458, University of Rochester - Center for Economic Research (RCER).
- Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1998. "Prospective Deficits and the Asian Currency Crisis," NBER Working Papers 6758, National Bureau of Economic Research, Inc.
- Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1998. "Prospective deficits and the Asian currency crisis," Working Paper Series WP-98-5, Federal Reserve Bank of Chicago.
- Menzie D. Chinn & Kenneth M. Kletzer, 2000.
"International Capital Inflows, Domestic Financial Intermediation and Financial Crises under Imperfect Information,"
NBER Working Papers
7902, National Bureau of Economic Research, Inc.
- Menzie D. Chinn & Kenneth M. Kletzer, 1999. "International capital inflows, domestic financial intermediation and financial crises under imperfect information," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
- Michael P. Dooley, 1998.
"A model of crises in emerging markets,"
International Finance Discussion Papers
630, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:roc:rocher:482. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard DiSalvo)
If references are entirely missing, you can add them using this form.