Nominal Debt and the Dynamics of Currency Crises

We study the interaction of fiscal and monetary policies during a currency crisis in an economy with government nominal liabilities. We show that the stock and maturity of these liabilities are key determinants of the magnitude, timing and predictability of a devaluation. Among notable features of our model, monetary authorities defend the currency parity conditional on the level of the interest rate, rather than on the stock of international reserves; budget deficits need not be high before a currency crisis; postdevaluation inflation may exhibit little persistence, and money demand need not fall after the crisis.


Issue Date:
2000
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/28516
Total Pages:
35
JEL Codes:
F31; F33; E58
Series Statement:
Center Discussion Paper No. 820




 Record created 2017-04-01, last modified 2017-08-24

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