Public debt and currency crisis: how central bank opacity can make things bad?

Meixing Dai ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines how the transparency in monetary policy decision can impact the likelihood of currency crisis in a simple open economy model with public debt. In the presence of opacity, it is found that if the debt is high, the government will devaluate and vice versa, and the self-fulfilling multiple equilibria solution disappears. Furthermore, the opacity reduces the threshold of public debt above which the government is considered as totally lacking the credibility in its pre-commitment to maintain fixed the exchange rate.

Keywords: central bank transparency; public debt; currency crisis; speculative attack (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 F37 O23 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Economics Bulletin 1.29(2009): pp. 190-198

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Related works:
Journal Article: Public debt and currency crisis: how central bank opacity can make things bad? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13867

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