Government Finance in the Wake of Currency Crises
A. Craig Burnside
Duke University - Department of Economics; University of Glasgow - Department of Economics; National Bureau of Economic Research (NBER)
Northwestern University; National Bureau of Economic Research (NBER)
Sergio T. Rebelo
Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)
May 26, 2003
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).
Number of Pages in PDF File: 65
Keywords: Currency crisis, banking crisis, speculative attacks, seigniorage, fiscal reform, bailouts
JEL Classification: F31working papers series
Date posted: June 16, 2003
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