The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Currency Crises Models

  • Craig Burnside
  • Martin Eichenbaum
  • Sergio Rebelo
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2177

Abstract

Currency crises have occurred frequently in the post-war era. In this article we review the literature on the causes and consequences of currency crises. First- generation models attribute a central role to fiscal policy as a fundamental determinant of crises. Second-generation models emphasize the possibility of self-fulfilling speculative attacks and multiple equilibria. Third-generation models stress how financial fragility can lead to currency crises.

Keywords

Asian currency crisis (1997) Bank runs Budget deficits Consumer optimization Credit risk Currency crises Currency crisis models Exchange rate regimes Financial crises Fiscal theory of the price level Fixed exchange rates Government budget constraint Government guarantees Intertemporal budget constraint Liquidity crises Money demand functions Money supply Purchasing power parity Seigniorage Speculative attacks 
This is a preview of subscription content, log in to check access

Bibliography

  1. Barro, R., and D. Gordon. 1983. A positive theory of monetary policy in a natural rate model. Journal of Political Economy 91: 589–610.CrossRefGoogle Scholar
  2. Burnside, C., M. Eichenbaum, and S. Rebelo. 2001a. Prospective deficits and the Asian currency crisis. Journal of Political Economy 109: 1155–1198.CrossRefGoogle Scholar
  3. Burnside, C., M. Eichenbaum, and S. Rebelo. 2001b. Hedging and financial fragility in fixed exchange rate regimes. European Economic Review 45: 1151–1193.CrossRefGoogle Scholar
  4. Burnside, C., M. Eichenbaum, and S. Rebelo. 2004. Government guarantees and self-fulfilling speculative attacks. Journal of Economic Theory 119: 31–63.CrossRefGoogle Scholar
  5. Caballero, R., and A. Krishnamurthy. 2001. International and domestic collateral constraints in a model of emerging market crises. Journal of Monetary Economics 48: 513–548.CrossRefGoogle Scholar
  6. Cagan, P. 1956. Monetary dynamics of hyperinflation. In Studies in the quantity theory of money, ed. M. Friedman. Chicago: University of Chicago Press.Google Scholar
  7. Calvo, G. 1987. Balance of payments crises in a cash-in-advance economy. Journal of Money Credit and Banking 19: 19–32.CrossRefGoogle Scholar
  8. Chang, R., and A. Velasco. 2001. A model of financial crises in emerging markets. Quarterly Journal of Economics 116: 489–517.CrossRefGoogle Scholar
  9. Christiano, L., F. Braggion, and J. Roldos. 2006. The optimal monetary response to a financial crisis. Mimeo, Northwestern University.Google Scholar
  10. Corsetti, G., and B. Mackowiak. 2006. Fiscal imbalances and the dynamics of currency crises. European Economic Review 50: 1317–1338.CrossRefGoogle Scholar
  11. Corsetti, G., P. Pesenti, and N. Roubini. 1999. What caused the Asian currency and financial crisis? Japan and the World Economy 11: 305–373.CrossRefGoogle Scholar
  12. Daniel, B. 2001. The fiscal theory of the price level in an open economy. Journal of Monetary Economics 48: 293–308.CrossRefGoogle Scholar
  13. Diamond, D., and P. Dybvig. 1983. Bank runs, deposit insurance and liquidity. Journal of Political Economy 91: 401–419.CrossRefGoogle Scholar
  14. Diaz-Alejandro, C. 1985. Good-bye financial repression, hello financial crash. Journal of Development Economics 19: 1–24.CrossRefGoogle Scholar
  15. Drazen, A., and E. Helpman. 1987. Stabilization with exchange rate management. Quarterly Journal of Economics 102: 835–855.CrossRefGoogle Scholar
  16. Dupor, W. 2000. Exchange rates and the fiscal theory of the price level. Journal of Monetary Economics 45: 613–630.CrossRefGoogle Scholar
  17. Eichengreen, B., and R. Hausmann. 1999. Exchange rates and financial fragility. In New challenges for monetary policy: A symposium sponsored by the Federal Reserve Bank of Kansas City. Kansas City: Federal Reserve Bank of Kansas City.Google Scholar
  18. Flood, R., and P. Garber. 1984. Collapsing exchange rate regimes: Some linear examples. Journal of International Economics 17: 1–13.CrossRefGoogle Scholar
  19. Flood, R., and N. Marion. 1999. Perspectives on the recent currency crisis literature. International Journal of Finance and Economics 4: 1–26.CrossRefGoogle Scholar
  20. Henderson, D., and S. Salant. 1978. Market anticipations of government policies and the price of gold. Journal of Political Economy 86: 627–648.CrossRefGoogle Scholar
  21. Jeanne, O. 2000. Currency crises: A perspective on recent theoretical developments. Special Papers in International Economics, No. 20, International Finance Section, Princeton University.Google Scholar
  22. Kaminsky, G., and C. Reinhart. 1999. The twin crises: The causes of banking and balance-of-payments problems. American Economic Review 89: 473–500.CrossRefGoogle Scholar
  23. Krugman, P. 1979. A model of balance of payments crises. Journal of Money, Credit and Banking 11: 311–325.CrossRefGoogle Scholar
  24. Lahiri, A., and C. Végh. 2003. Delaying the inevitable: Interest rate defense and BOP crises. Journal of Political Economy 111: 404–424.CrossRefGoogle Scholar
  25. McKinnon, R., and H. Pill. 1996. Credible liberalizations and international capital flows: The overborrowing syndrome. In Financial deregulation and integration in East Asia, ed. T. Ito and A. Krueger. Chicago: University of Chicago Press.Google Scholar
  26. Morris, S., and H. Shin. 1998. Unique equilibrium in a model of self-fulfilling currency attacks. American Economic Review 88: 587–597.Google Scholar
  27. Obstfeld, M. 1986. Speculative attack and the external constraint in a maximizing model of the balance of payments. Canadian Journal of Economics 29: 1–20.CrossRefGoogle Scholar
  28. Obstfeld, M. 1994. The logic of currency crises. Cahiers Economiques et Monétaires 43: 189–213.Google Scholar
  29. Obstfeld, M. 1996. Models of currency crises with self-fulfilling features. European Economic Review 40: 1037–1047.CrossRefGoogle Scholar
  30. van Wijnbergen, S. 1991. Fiscal deficits, exchange rate crises and inflation. Review of Economic Studies 58: 81–92.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Craig Burnside
    • 1
  • Martin Eichenbaum
    • 1
  • Sergio Rebelo
    • 1
  1. 1.