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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)

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

Dates:

Date	Event
October 2006	Published

Number:

No.213

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Not Peer Reviewed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)

References:

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