How Can Fiscal Policy Help Avert Currency Crises?

16 Pages Posted: 1 Feb 2006

See all articles by George Kopits

George Kopits

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2000

Abstract

An overview of crisis episodes in emerging-market economies with a pegged exchange rate regime in the 1990s suggests that sizable explicit or implicit government deficits, or market perceptions of lack of fiscal sustainability, render these economies vulnerable to currency crises under high capital mobility. It is argued in the paper that vulnerability to crisis can be mitigated by signaling a phased fiscal adjustment that involves credible implementation of key structural measures. In particular, fiscal policy rules, such as the ones being adopted in a number of emerging-market economies, constitute a potentially useful tool of crisis prevention.

Keywords: balance of payments crises, fiscal policy

JEL Classification: E62, F32, F41, H6

Suggested Citation

Kopits, George, How Can Fiscal Policy Help Avert Currency Crises? (November 2000). IMF Working Paper No. 00/185, Available at SSRN: https://ssrn.com/abstract=880273

George Kopits (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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