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This Paper explores the implications of different strategies for financing the fiscal costs of twin crises in 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...
Persistent link: https://www.econbiz.de/10005791885
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...
Persistent link: https://www.econbiz.de/10005791917
capital stock is fixed, there may be multiple equilibria. If foreign banks regard lending as low-risk, then it is. But if they … regard lending as high-risk and charge a higher interest rate, then the costs of honouring guarantees rises, making the … lending high-risk and the risk premium self-justifying. A crisis occurs with a switch to this second equilibrium in which the …
Persistent link: https://www.econbiz.de/10005498101
low-risk, then it is. But if they regard lending as high-risk then the cost of honouring guarantees rises, making the … lending high-risk and the risk premium self-justifying. We argue that this model usefully captures the ideas of panic and …
Persistent link: https://www.econbiz.de/10005661596