Discussion Paper Details

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Title: Government Finance in the Wake of Currency Crises

Author(s): Craig Burnside, Martin Eichenbaum and Sérgio Rebelo

Publication Date: June 2003

Keyword(s): bailouts, banking crisis, currency crisis, fiscal reform, seigniorage and speculative attacks

Programme Area(s): International Macroeconomics

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).

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Bibliographic Reference

Burnside, C, Eichenbaum, M and Rebelo, S. 2003. 'Government Finance in the Wake of Currency Crises'. London, Centre for Economic Policy Research.