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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. Working Paper. Coventry: University of Warwick. Centre for the Study of Globalisation and Regionalisation. Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) (No.213).
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Official URL: http://www2.warwick.ac.uk/fac/soc/csgr/research/wo...
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) | ||||
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| Subjects: | H Social Sciences > HG Finance | ||||
| Divisions: | Faculty of Social Sciences > Economics Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation |
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| Library of Congress Subject Headings (LCSH): | Supply and demand, Financial crises, Devaluation of currency, Keynesian economics, Recessions | ||||
| Series Name: | Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) | ||||
| Publisher: | University of Warwick. Centre for the Study of Globalisation and Regionalisation | ||||
| Place of Publication: | Coventry | ||||
| Official Date: | October 2006 | ||||
| Dates: |
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| Number: | No.213 | ||||
| Number of Pages: | 35 | ||||
| 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| Status: | Not Peer Reviewed | ||||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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