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Structural vulnerability and resilience to currency crisis: Foreign currency debt versus export

Ryota Nakatani

The North American Journal of Economics and Finance, 2017, vol. 42, issue C, 132-143

Abstract: Is there any factor that is not analyzed in the literature but is important for preventing currency crises? I argue that exports are an important factor to prevent currency crises that has not been frequently analyzed in the existing theoretical literature. Using the third generation model of currency crises, I derive a simple and intuitive formula that captures an economy’s structural vulnerability characterized by the elasticity of exports and repayments for foreign currency denominated debt. I graphically show that the possibility of currency crisis equilibrium depends on this structural vulnerability and also analyze how this vulnerability impacts the effectiveness of monetary policy response.

Keywords: Currency crisis; Exports; Foreign currency debt; Monetary policy; Elasticity; Structural vulnerability (search for similar items in EconPapers)
Date: 2017
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