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The other twins : currency and debt crises

Title data

Bauer, Christian ; Herz, Bernhard ; Karb, Volker:
The other twins : currency and debt crises.
In: Jahrbuch für Wirtschaftswissenschaften = Review of Economics. Vol. 54 (2003) Issue 3 . - pp. 248-267.
ISSN 0948-5139

Official URL: Volltext

Abstract in another language

Empirically, currency crises are more frequently accompanied by simultaneous sovereign debt crises than by banking crises. Nevertheless the phenomenon of twin currency and debt crises has so far been treated in economic literature only sparsely. We analyse the optimal policy of a government that may choose and combine two policy alternatives. She may choose at the same time whether to keep or alternatively exit an existing exchange rate peg and whether or not to default on her debt. Both parameters have a large impact not only on the public welfare but on the government's budget as well. The resulting incentive system can generate situations with self-fulfilling expectations. In some situations an internal contagion effect arises. A crisis in the sovereign debt market spreads to the sector of exchange rate policy and causes a devaluation as well. Private investors' default expectations thus can not only cause a sovereign debt crisis but may lead to a currency crisis as well.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: currency crises; internal contagion; self-fulfilling expectations and sovereign debt
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I > Chair Economics I - Univ.-Prof. Dr. Bernhard Herz
Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
Date Deposited: 20 May 2015 06:38
Last Modified: 20 May 2015 06:38
URI: https://eref.uni-bayreuth.de/id/eprint/10162