Fiscal Deficits and Currency Crises

This paper investigates currency and financial crises in an optimizing general equilibrium model. It is shown that a rise in current and expected future budget deficits generates a real exchange rate appreciation and a decumulation of external assets, leading up to a currency crisis when foreign reserves approximate a critical level. Strong empirical support for our model is obtained by a probit estimation for Latin American and Asian countries.

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Year of publication:	2003-05-08
Authors:	Marini, Giancarlo ; Piersanti, Giovanni
Institutions:	Centro di Studi Internazionali Sull'Economia e la Sviluppo (CEIS), Facoltà di Economia
Subject:	budget deficits \| foreign exchange reserves \| currency crises

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Extent:	application/pdf
Series:	CEIS Research Paper.
Type of publication:	Book / Working Paper
Language:	English
Notes:	3 pages long
Classification:	F31 - Foreign Exchange ; F32 - Current Account Adjustment; Short-Term Capital Movements ; F41 - Open Economy Macroeconomics ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005795464