On the Fiscal Implications of Twin Crises

Craig Burnside, Martin Eichenbaum and Sergio Rebelo (s-rebelo@kellogg.northwestern.edu)

No 482, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

Abstract: This paper explores the implications of different strategies for financng the fiscal costs of twin crises for inflation and depreciation rates. We use a first-generation type model of speculative attacks which has four key features: (i) the crisis is triggered by prospective deficits; (ii) there exists outstanding non-indexed government debt issued prior to the crisis; (iii) a portion of the government's liabilities are not indexed to inflation; (iv) there are nontradeable goods and costs of distributing tradeable goods, so that the purchasing power parity does not hold. We show that the model can account for the high rates of devaluation and the moderate rates of inflation often observed in the wake of currency crises. We use our model and the data to interpret the recent currency crises in mexico and Korea. Our analysis suggests that the Mexican government is likely to pay for the bulk of the fiscal costs of its crisis through seignorage revenues. in contrast, the Korean government is likely to rely more on a combination of implicit and explicit fiscal reforms.

Keywords: Currency crisis; banking crisis; speculative attacks; seignorage; fiscal reform bailouts (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2001-05
New Economics Papers: this item is included in nep-dge and nep-ifn
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://rcer.econ.rochester.edu/RCERPAPERS/rcer_482.pdf full text (application/pdf)
None

Related works:
Chapter: On the Fiscal Implications of Twin Crises (2003)
Working Paper: On the Fiscal Implications of Twin Crises (2001)
Working Paper: On the fiscal implications of twin crises (2001)
Working Paper: On the Fiscal Implications of Twin Crises (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:roc:rocher:482

Access Statistics for this paper

More papers in RCER Working Papers from University of Rochester - Center for Economic Research (RCER) University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by Richard DiSalvo (rdisalvo@oswego.edu this e-mail address is bad, please contact repec@repec.org).