Show simple item record Burnside, C Eichenbaum, M Rebelo, S 2010-03-09T15:32:19Z 2004-11-01
dc.identifier.citation Journal of Economic Theory, 2004, 119 (1 SPEC. ISS.), pp. 31 - 63
dc.identifier.issn 0022-0531
dc.description.abstract We develop a model in which government guarantees to banks' foreign creditors are a root cause of self-fulfilling twin banking-currency crises. Absent guarantees, such crises are not possible. In the presence of guarantees banks borrow foreign currency, lend domestic currency and do not hedge the resulting exchange rate risk. With guarantees, banks will also renege on their foreign debts and declare bankruptcy when a devaluation occurs. We assume that the government is unable or unwilling to fully fund the resulting bailout via an explicit fiscal reform. These features of our model imply that government guarantees lead to self-fulfilling banking-currency crises. © 2003 Elsevier Inc. All rights reserved.
dc.format.extent 31 - 63
dc.format.mimetype application/pdf
dc.language.iso en_US
dc.relation.ispartof Journal of Economic Theory
dc.relation.isversionof 10.1016/j.jet.2003.06.002
dc.title Government guarantees and self-fulfilling speculative attacks
dc.type Journal Article
dc.department Economics
pubs.issue 1 SPEC. ISS.
pubs.organisational-group /Duke
pubs.organisational-group /Duke/Trinity College of Arts & Sciences
pubs.organisational-group /Duke/Trinity College of Arts & Sciences/Economics
pubs.publication-status Published
pubs.volume 119

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