Government finance in the wake of currency crises

Craig Burnside, Martin Eichenbaum, Sergio Rebelo*

*Corresponding author for this work

Research output: Contribution to journalArticle

24 Scopus citations

Abstract

We address three questions: (i) Can classical models be reconciled with the fact that many crises are marked by high rates of depreciation and small increases in seignorage revenue? (ii) What are the implications of different financing methods for post-crisis rates of inflation and depreciation? (iii) How do governments pay for the fiscal costs associated with currency crises? To study these questions we use a general equilibrium model in which prospective government deficits trigger a currency crisis. 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).

Original languageEnglish (US)
Pages (from-to)401-440
Number of pages40
JournalJournal of Monetary Economics
Volume53
Issue number3
DOIs
StatePublished - Apr 1 2006

Keywords

  • Bailouts
  • Banking crisis
  • Currency crisis
  • Fiscal reform
  • Seignorage
  • Speculative attacks

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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