Welfare Costs of Bilateral Currency Crises: The Role of International Trade

Hakan Yilmazkuday

No 2010, Working Papers from Florida International University, Department of Economics

Abstract: This paper shows that bilateral currency crises reduce bilateral trade up to 50% after controlling for the depreciation rate. Using a trade model, these reductions are connected to the welfare costs of currency crises. The results show that a single currency crisis can result in welfare reductions through changes in international trade corresponding to more than 10% (and up to 41%) of the costs of autarky for 23 different currency crisis episodes between 1960 and 2014. These welfare costs are also shown to be greater than the welfare gains from having free trade agreements and using common currencies for 25 different currency crisis episodes.

Keywords: Welfare Costs; Currency Crises; International Trade (search for similar items in EconPapers)
JEL-codes: F14 F31 F63 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2020-11
New Economics Papers: this item is included in nep-his, nep-int and nep-opm
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https://economics.fiu.edu/research/pdfs/2020_working_papers/2010.pdf First version, 2020 (application/pdf)

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Journal Article: Welfare costs of bilateral currency crises: The role of international trade (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fiu:wpaper:2010

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