DP3939 Government Finance in the Wake of Currency Crises

Author(s): Craig Burnside, Martin Eichenbaum, Sérgio Rebelo
Publication Date: June 2003
Keyword(s): bailouts, banking crisis, currency crisis, fiscal reform, seigniorage, speculative attacks
JEL(s): F31
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3939

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).