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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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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)

Subjects:

H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory

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:

Date	Event
October 2006	Published

Number:

No.590

Number of Pages:

Institution:

University of Warwick

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Not Peer Reviewed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)

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