A model of the interactions between banking crises and currency crises

Michael Bleaney, Spiros Bougheas and Ilias Skamnelos

Journal of International Money and Finance, 2008, vol. 27, issue 5, 695-706

Abstract: A second-generation model of currency crises is combined with a standard banking model. In a pegged exchange rate regime, after funds have been committed to the banks, news arrives about the quality of the banks' assets and about the exchange rate fundamentals. A run on the banks may cause a currency crisis, or vice versa. There are multiple equilibria (with either twin crises or no crisis), depending on depositors' expectations of other depositors' actions. Suspension of deposit convertibility can prevent a speculative attack on the currency, but last resort lending to solvent banks can induce one.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:27:y:2008:i:5:p:695-706

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