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Budget Deficits and Exchange-Rate Crises |
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| Authors: | Barbara Annicchiarico Giancarlo Marini Giovanni Piersanti |
| Institution: | 1. Department of Economics , University of Rome ‘Tor Vergata’ , Via Columbia 2, 00133, Roma, Italybarbara.annicchiarico@uniroma2.it;3. Department of Economics , University of Rome ‘Tor Vergata’ , Via Columbia 2, 00133, Roma, Italy;4. University of Teramo , Teramo, Italy |
| Abstract: | This paper investigates currency crises in an optimizing general equilibrium model with overlapping generations. It is shown that a rise in government budget deficits financed by future taxes generates a decumulation of external assets, leading up to a speculative attack and forcing the monetary authorities to abandon the peg. |
| Keywords: | Budget deficits foreign exchange reserves currency crises |