Fiscal Deficits and Currency Crises

37 Pages Posted: 8 May 2003  

Giancarlo Marini

University of Rome, Tor Vergata - Faculty of Economics

Giovanni Piersanti

University of Rome, Tor Vergata - Department of Economics and Law

Date Written: May 2003

Abstract

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.

Keywords: budget deficits, foreign exchange reserves, currency crises

JEL Classification: F31, F32, F41, E52, E62

Suggested Citation

Marini, Giancarlo and Piersanti, Giovanni, Fiscal Deficits and Currency Crises (May 2003). CEIS Tor Vergata - Research Paper Series No. 15. Available at SSRN: https://ssrn.com/abstract=403201 or http://dx.doi.org/10.2139/ssrn.403201

Giancarlo Marini (Contact Author)

University of Rome, Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

Giovanni Piersanti

University of Rome, Tor Vergata - Department of Economics and Law ( email )

Via Columbia n.2
I-00133 Rome
Italy

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