Supply shocks and currency crises: the policy dilemma reconsidered
Marcus Miller (),
Javier García-Fronti () and
No 269653, Economic Research Papers from University of Warwick - Department of Economics
The stylised facts of currency crises in emerging markets include output contraction coming hard on the heels of devaluation, with a prominent role for the adverse balance-sheet effects of liability dollarisation. In the light of the South East Asian experience, we propose an eclectic blend of the supply-side account of Aghion, Bacchetta and Banerjee (2000) with a demand recession triggered by balance sheet effects (Krugman, 1999). This sharpens the dilemma facing the monetary authorities - how to defend the currency without depressing the economy. But, with credible commitment or complementary policy actions, excessive output losses can, in principle, be avoided.
Keywords: Agricultural and Food Policy; Financial Economics (search for similar items in EconPapers)
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Working Paper: Supply Shocks and Currency Crises: The Policy Dilemma Reconsidered (2006)
Working Paper: Supply shocks and currency crises: the policy dilemma reconsidered (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269653
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