Government finance in the wake of currency crises

Craig Burnside, Martin Eichenbaum, Sergio Rebelo*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

27 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 2006

Funding

We are grateful for an NSF grant through the National Bureau of Economic Research and a grant from the World Bank. The opinions in this paper are those of the authors and not necessarily those of the Federal Reserve Bank of Chicago or the World Bank. We thank Martin Bodenstein, Pedro Garcia Duarte, Yuliya Mescheryakova, Carlos Végh, and Jeffrey Wood for valuable comments and Selim Elekdag, Su Youne Lee and Mi Hwa Park for invaluable assistance with data.

Keywords

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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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