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Supply shocks and currency crises: the policy dilemma reconsidered
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Miller, Marcus, García Fronti, Javier I. and Zhang, Lei (2006) Supply shocks and currency crises: the policy dilemma reconsidered. Discussion Paper. London: Centre for Economic Policy Research (Great Britain). Discussion paper (Centre for Economic Policy Research (Great Britain)) (No.590).
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Official URL: http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=5...
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 (Discussion Paper) | ||||
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Subjects: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
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Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Currency crises, Financial crises, Keynesian economics, Recessions, Supply and demand | ||||
Series Name: | Discussion paper (Centre for Economic Policy Research (Great Britain)) | ||||
Publisher: | Centre for Economic Policy Research (Great Britain) | ||||
Place of Publication: | London | ||||
Official Date: | October 2006 | ||||
Dates: |
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Number: | No.590 | ||||
Number of Pages: | 41 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Funder: | Economic and Social Research Council (Great Britain) (ESRC) | ||||
Grant number: | RES-051-27-0125 (ESRC), RES-156-25-0032 (ESRC) |
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