Working Paper: NBER ID: w9786
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: currency crises; government finance; inflation; depreciation
JEL Codes: F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government deficits (H62) | currency crises (F31) |
| currency crises (F31) | inflation rates (E31) |
| currency crises (F31) | depreciation rates (E43) |
| indexing of debt (G12) | inflation outcomes (E31) |
| decline in dollar value of government transfers (H53) | revenue sources (H27) |
| government financing methods (H81) | fiscal costs of currency crises (F31) |