Government guarantees and self-fulfilling speculative attacks |
| |
Authors: | Craig Burnside Sergio Rebelo |
| |
Affiliation: | a Department of Economics, University of Virginia, Charlottesville, VA 22904, USA b Department of Economics, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, USA c NBER and Federal Reserve Bank of Chicago, USA d Department of Finance, Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208, USA e NBER and CEPR, USA |
| |
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. |
| |
Keywords: | F31 F41 G15 G21 |
本文献已被 ScienceDirect 等数据库收录! |
|