Currency Crises, Monetary Policy and Corporate Balance Sheets

Sylvester Eijffinger and Goderis Benedikt
Additional contact information
Goderis Benedikt: University of Oxford,OxfordOX1 2JD, United Kingdom of Great Britain and Northern Ireland

German Economic Review, 2007, vol. 8, issue 3, 309-343

Abstract: This paper studies how the exposure of a country’s corporate sector to interest rate and exchange rate changes affects the probability of a currency crisis. To analyze this question, we present a model that defines currency crises as situations in which the costs of maintaining a fixed exchange rate exceed the costs of abandonment. The results show that a higher exposure to interest rate changes increases the probability of crisis through an increased need for output loss compensation and an increased efficacy of monetary policy in stimulating output. A higher exposure to exchange rate changes also increases the need for output loss compensation. However, it lowers the efficacy of monetary policy in stimulating output through the adverse balance sheet effects of exchange rate depreciation. As a result, its effect on the probability of crisis is ambiguous.

Keywords: Currency crises; monetary policy; short-term debt; foreign debt; corporate balance sheets (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/j.1468-0475.2007.00410.x (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Journal Article: Currency Crises, Monetary Policy and Corporate Balance Sheets (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:germec:v:8:y:2007:i:3:p:309-343

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ger/html

DOI: 10.1111/j.1468-0475.2007.00410.x

Access Statistics for this article

German Economic Review is currently edited by Peter Egger, Almut Balleer, Jesus Crespo-Cuaresma, Mario Larch, Aderonke Osikominu and Georg Wamser

More articles in German Economic Review from De Gruyter
Bibliographic data for series maintained by Peter Golla ().