Debt and Currency Crises - Complements or Substitutes?

16 Pages Posted: 3 Nov 2008

See all articles by Bernhard Herz

Bernhard Herz

University of Bayreuth

Hui Tong

International Monetary Fund (IMF)

Abstract

Debt and currency crises are closely interlinked through the government's intertemporal budget constraint. The default tax and the inflation/devaluation tax can be considered as alternative means of financing. Our empirical analysis finds that high-debt countries choose default rather than inflation/devaluation for financing, while a high money stock reduces the probability of debt crises. Further, we find strong evidence that debt and currency crises share common fundamental causes. Finally, there is a Granger causality running from debt crises to currency crises, but only weakly in the other direction.

Suggested Citation

Herz, Bernhard and Tong, Hui, Debt and Currency Crises - Complements or Substitutes?. Review of International Economics, Vol. 16, Issue 5, pp. 955-970, November 2008. Available at SSRN: https://ssrn.com/abstract=1292039 or http://dx.doi.org/10.1111/j.1467-9396.2008.00760.x

Bernhard Herz (Contact Author)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Hui Tong

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
337
PlumX Metrics