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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:
DateEvent
October 2006Published
Number: No.590
Number of Pages: 41
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Status: Not Peer Reviewed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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