Hedging and Financial Fragilities in Fixed Exchange Rate Regimes

Craig Burnside (), Martin Eichenbaum () and Sergio Rebelo ()

No 461, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

Abstract: Currency crises that coincide with banking crises tend to share four elements. First, governments provide guarantees to domestic and foreign bank creditors. Second, banks do not hedge their exchange rate risk. Third, there is a lending boom before the crises. Finally, when the currency/banking collapse occurs interest rates rise and there is a persistent decline in output. This paper proposes an explanation for these regularities.

Keywords: BANKS; EXCHANGE RATE; FINANCIAL MARKET (search for similar items in EconPapers)
JEL-codes: F31 F41 G15 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk and nep-ifn
Date: 1999

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Persistent link: http://EconPapers.repec.org/RePEc:roc:rocher:461

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