DP3939 | Government Finance in the Wake of Currency Crises

Publication Date

23/06/2003

JEL Code(s)

Keyword(s)

Programme Area(s)

Network(s)

Abstract

This Paper addresses two questions: (i) how do governments actually pay for the fiscal costs associated with currency crises; and (ii) what are the implications of different financing methods for post-crisis rates of inflation and depreciation? We study these questions using a general equilibrium model in which a currency crisis is triggered by prospective government deficits. We then use our model in conjunction with fiscal data to interpret government financing in the wake of three recent currency crises: Korea (1997), Mexico (1994) and Turkey (2001).