Abstract
The purpose of this chapter is to re-examine the theoretical and empirical links between the fiscal sector and the emergence of currency crises, with an emphasis on transition economies. Section 5.1 covers the theoretical links between the fiscal sector and the risk of crises: subsection 5.1.1 outlines how a fiscal deficit may lead to a currency crisis (first-generation models), and subsection 5.1.2 deals with the connection between domestic debt and currency market turbulences (the second-generation Obstfeld model). Section 5.2 empirically tests a hypothesis on the importance of fiscal imbalances in currency crises, on the basis of two large samples consisting of developing and transition countries. Section 5.3 is also empirical but relates only in this case to transition economies. Section 5.4 offers conclusions.
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Siwińska, J. (2003). Currency Crises and Fiscal Imbalances — Transition Countries’ Perspective. In: Dąbrowski, M. (eds) Currency Crises in Emerging Markets. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-0343-9_5
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DOI: https://doi.org/10.1007/978-1-4615-0343-9_5
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