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Government Finance in the Wake of Currency Crises

  • Craig Burnside

    (University of Virginia.)

  • Martin Eichenbaum

    (Northwestern, NBER and Federal Reserve Bank of Chicago.)

  • Sergio Rebelo

    (Northwestern, NBER and CEPR)

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 University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 501.

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Length: 66 pages
Date of creation: May 2003
Date of revision:
Handle: RePEc:roc:rocher:501
Contact details of provider: Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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