Fiscal Deficits and Currency Crises

Giancarlo Marini () and Giovanni Piersanti ()

CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper investigates currency and financial crises in an optimizing general equilibrium model. It is shown that a rise in current and expected future budget deficits generates a real exchange rate appreciation and a decumulation of external assets, leading up to a currency crisis when foreign reserves approximate a critical level. Strong empirical support for our model is obtained by a probit estimation for Latin American and Asian countries.

Keywords: budget deficits; foreign exchange reserves; currency crises (search for similar items in EconPapers)
JEL-codes: F31 F32 F41 E52 E62 (search for similar items in EconPapers)
Date: 2003-05-08
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Persistent link: http://EconPapers.repec.org/RePEc:rtv:ceisrp:15

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