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Supply shocks and currency crises: the policy dilemma reconsidered

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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. 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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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
Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
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
Number: No.213
Number of Pages: 35
Status: Not Peer Reviewed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:

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URI: http://wrap.warwick.ac.uk/id/eprint/1893

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