Working Paper: CEPR ID: DP3939
Authors: Craig Burnside; Martin Eichenbaum; Sergio Rebelo
Abstract: This Paper addresses two questions: (i) how do governments actually pay for the fiscal costs associated with currency crises; and (ii) what are the implications of different financing methods for post-crisis rates of inflation and depreciation? We study these questions using a general equilibrium model in which a currency crisis is triggered by prospective government deficits. 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).
Keywords: bailouts; banking crisis; currency crisis; fiscal reform; seigniorage; speculative attacks
JEL Codes: F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| seigniorage (E42) | total costs associated with the crisis (H12) |
| debt devaluation (H63) | post-crisis inflation (E31) |
| implicit fiscal reforms (H39) | post-crisis inflation (E31) |
| decline in dollar value of government transfers (H53) | fiscal stability of the government during crises (H12) |
| large devaluations (F31) | low inflation rates (E31) |