Miller, Marcus, 1941-, García Fronti, Javier I. and Zhang, Lei, Dr. (2006) Supply shocks and currency crises: the policy dilemma reconsidered. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

Preview

PDF WRAP_Garcia-Fronti_twerp_760.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (256Kb)

Abstract

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.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Keynesian economics, Interest rates -- Effect of inflation on, Supply and demand, Financial crises, Devaluation of currency
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	September 2006
Number:	No.760
Number of Pages:	31
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	RES-051-27-0125 (ESRC), RES-156-25-0032 (ESRC)
References:	Aghion, P., P. Bacchetta and A. Banerjee, 2000. A simple model of monetary policy and currency crises. European Economic Review 44 (4-6), 728–738. Aghion, P., P. Bacchetta and A. Banerjee, 2001. Currency crises and monetary policy in an economy with credit constraints. European Economic Review 45(7), 1121–1150. Aghion, P. and A. Banerjee, 2005. Volatility and Growth. Clarendon Lectures, Oxford University Press, Oxford. Baldi-Delatte, A., 2005. Did Pesification Rescue Argentina? presented at LACEA 2005, Paris. Blanchard, O. and D. Quah, 1989. The Dynamic Effects of Aggregate Demand and Supply Disturbances. American Economic Review 79, 655-73. Becker, S., 2006. Financial Crisis in Emerging Market: Analysing Argentina. MSc Dissertation, University of Warwick. Calvo, G., A. Izquierdo and L. Mejia, 2004. On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects. NBER Working Paper No. 10520. Calvo, G. and C. Reinhart, 2000. When capital inflows come to a sudden stop: Consequences and policy options. In P.Kenen and A.Swoboda, eds, Key Issues in Reform of the International Monetary and Financial System Washington DC: IMF. Calvo, G. and C. Reinhart, 2002. Fear of Floating. Quarterly Journal of Economics CXVII No. 2, May, 379-408. Céspedes, L., R. Chang and A. Velasco, 2003. IS-LM-BP in the Pampas. IMF Staff Papers 50 (Special issue), 143–156. Ennis, H. and T. Keister, 2003. Economic growth, liquidity, and bank runs. Journal of Economic Theory, 109 (2), 220-245. Fratzscher, M., 2003. On Currency Crises and Contagion. International Journal of Finance & Economics, 8 (2), 109-129. Frankel, J., 2005. Mundell-Fleming Lecture: Contractionary currency crashes in developing countries. IMF Staff Papers 52 (2) 149-192. Fischer, S. 2001. The International Financial System: Crises and Reform. LSE: The Robbins Lectures (October, unpublished). Fischer, S.,2004. IMF Essays from a Time of Crisis. London, England: MIT Press Griffith-Jones S. and R. Gottschalk, 2004. Costs of Currency, Crises and Benefits of International Financial Reform”. Mimeo, Institute of Development Studies, University of Sussex. Kaplan, E. and D. Rodrik, 2001. Did the Malaysian Capital Controls Works?. NBER WP: 8142, Cambridge MA. Kroszner, R., 2003. Is it better to forgive than to receive? an empirical analysis of the impact of debt repudiation. Mimeo, University of Chicago November. Krugman, P., 1998. Saving Asia: it's time to get radical. Fortune, September 7. Krugman, P., 1999. Analytical Afterthoughts on the Asian Crisis. Mimeo, MIT, available at http://web.mit.edu/krugman/www/MINICRIS.htm. Krugman, P., 1998. An Open Letter to Prime Minister Mahathir” Saving Asia in Fortune, Web Exclusive, September 1, 1998 Levy-Yeyati, E., 2005. Tras el canje de deuda vuelve el control de capitales versión 2005. Cronista Comercial. Buenos Aires. 26 February. Luangaram, P., 2003. Asset prices, leverage and financial crisis: the case of Thailand. Ph.D. thesis, Warwick. Meesook, K., H. Lee, O. Liu, Y. Khatri, N. Tamirisa, M. Moore, and M. Krysl, 2001. Malaysia: From Crisis to Recovery. IMF Occasional Paper No. 207, available at http://www.imf.org/external/pubs/nft/op/207/index.htm Miller, M., J. García-Fronti and L. Zhang, 2005. Credit crunch and Keynesian contraction: Argentina in crisis. CEPR Discussion Paper No: 4889. London, Centre for Economic Policy Research. Miller, M. and J. Stiglitz, 1999. Bankruptcy protection against macroeconomic shocks: The case for a ’super chapter 11. Unpublished manuscript presented at the World Bank Conference on Capital Flows, Financial Crises and Policies, April 1999. Rancière, R., A. Tornell and F. Westermann, 2002. Systemic Crises and Growth. Economics Working Papers 854, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2004 Schiffrin, A., not dated. Case Study: Malaysia's Capital Controls. IPD website Columbia university. Stiglitz, J., 1999. Reforming the global economic architecture: Lessons from recent crises. The Journal of Finance (54), 1508–1521. Sturzenegger, F., 2003. La Economía de los Argentinos. Planeta, Buenos Aires. Woods, N., 2006. The Globalizers: The IMF, the World Bank, and Their Borrowers. Cornell Studies in Money. Williamson, J., 1999. Implications of the East Asian Crisis for Debt Management. Paper presented to a conference on "External Debt Management", Organized by the Reserve Bank of India, the Indian Ministry of Finance, and the World Bank, Kovalam, Kerala.
URI:	http://wrap.warwick.ac.uk/id/eprint/1438

Request changes to a record

Actions (login required)

View Item