Government Finance in the Wake of Currency Crises
This paper addresses two questions: (i) how do governments actually pay for the fiscal costs associated with currency crises; and (ii) what are the implications of different financing methods for post-crisis rates of inflation and depreciation? We study these questions using a general equilibrium model in which a currency crisis is triggered by prospective government deficits. We then use our model in conjunction with fiscal data to interpret government financing in the wake of three recent currency crises: Korea (1997), Mexico (1994) and Turkey (2001).
Burnside, Craig, Martin Eichenbaum and Sergio Rebelo. "Government Finance In The Wake Of Currency Crises," Journal of Monetary Economics, 2006, v53(3,Apr), 401-440. citation courtesy of