Supply shocks and currency crises: the policy dilemma reconsidered

Javier García-Fronti, Marcus Miller and Lei Zhang ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The stylised facts of currency crises in emerging markets include output contraction coming hard on the heels of devaluation, with a prominent role for the adverse balance-sheet effects of liability dollarisation. In the light of the South East Asian experience, we propose an eclectic blend of the supply-side account of Aghion, Bacchetta and Banerjee (2000) with a demand recession triggered by balance sheet effects (Krugman, 1999). This sharpens the dilemma facing the monetary authorities - how to defend the currency without depressing the economy. But, with credible commitment or complementary policy actions, excessive output losses can, in principle, be avoided.

Keywords: Supply and demand shocks; financial crises; contractionary devaluation; Keynesian recession (search for similar items in EconPapers)
JEL-codes: E12 E4 E51 F34 G18 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2006
New Economics Papers: this item is included in nep-acc, nep-cba, nep-fin, nep-mac, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Supply shocks and currency crises: the policy dilemma reconsidered (2006)
Working Paper: Supply Shocks and Currency Crises: The Policy Dilemma Reconsidered (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:760

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