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Structural vulnerability and resilience to currency crisis: Foreign currency debt versus export |
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| Institution: | 1. Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan;2. School of Business Administration, Southwestern University of Finance and Economics, Sichuan, China;1. Department of Economics and Quantitative Methods, Westminster Business School, University of Westminster, London NW1 5LS, UK;2. Department of Economics and IME, University of Salamanca, Salamanca, Spain;1. Department of Economics, National Central University, 300 Jhongda Rd., Jhongli, Taoyuan, Taiwan;2. Department of Finance, National Central University, 300 Jhongda Rd., Jhongli, Taoyuan, Taiwan |
| Abstract: | Is there any factor that is not analyzed in the literature but is important for preventing currency crises? I argue that exports are an important factor to prevent currency crises that has not been frequently analyzed in the existing theoretical literature. Using the third generation model of currency crises, I derive a simple and intuitive formula that captures an economy’s structural vulnerability characterized by the elasticity of exports and repayments for foreign currency denominated debt. I graphically show that the possibility of currency crisis equilibrium depends on this structural vulnerability and also analyze how this vulnerability impacts the effectiveness of monetary policy response. |
| Keywords: | Currency crisis Exports Foreign currency debt Monetary policy Elasticity Structural vulnerability |
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