On the Fiscal Implications of Twin Crises

Edited by A. Craig Burnside, Martin Eichenbaum and Sergio Rebelo

in Managing Currency Crises in Emerging Markets

Published by University of Chicago Press

Published in print February 2003 | ISBN: 9780226155401
Published online February 2013 | e-ISBN: 9780226155425 | DOI:
On the Fiscal Implications of Twin Crises

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This chapter examines the implications of different strategies for financing the fiscal costs of the twin crises of inflation and currency depreciation in Mexico and Korea in the 1990s using a model in which a currency crisis is triggered by prospective government deficits. It explains the features and capabilities of this model. The analysis reveals that the Mexican government will likely pay for most of the fiscal cost of its crisis by printing money while the Korean government is likely to do so via a mixture of future implicit and explicit fiscal reforms.

Keywords: twin crises; inflation; currency depreciation; Korea; Mexico; government deficits; fiscal reforms

Chapter.  15272 words.  Illustrated.

Subjects: International Economics

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