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A Crisis Transmission Channel for Reserve Currency Countries: A Cautionary Tale

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  • Victoria Miller

Abstract

World financial markets have been in turmoil as investors grapple with the possibility that Greece and perhaps Italy, Ireland, Portugal and Spain will default on their debts. The 2011 downgrade of the S&P outlook for US debt to “negative” suggests that there may eventually be concerns that the US will go the way of Europe. The paper studies possible transmission effects of a crisis for reserve-currency debt which may occur via central bank holdings of reserve-currency debt. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Victoria Miller, 2014. "A Crisis Transmission Channel for Reserve Currency Countries: A Cautionary Tale," Open Economies Review, Springer, vol. 25(4), pages 809-818, September.
    • Handle: RePEc:kap:openec:v:25:y:2014:i:4:p:809-818
    DOI: 10.1007/s11079-013-9292-6
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    References listed on IDEAS

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    1. Miller, V., 1998. "Domestic bank runs and speculative attacks on foreign currencies," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 331-338, April.
    2. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
    3. repec:bla:scandj:v:98:y:1996:i:4:p:463-84 is not listed on IDEAS
    4. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    5. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
    6. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
    7. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2001. "Hedging and financial fragility in fixed exchange rate regimes," European Economic Review, Elsevier, vol. 45(7), pages 1151-1193.
    8. Mr. Ilan Goldfajn & Mr. Rodrigo O. Valdes, 1997. "Capital Flows and the Twin Crises: The Role of Liquidity," IMF Working Papers 1997/087, International Monetary Fund.
    9. Miller, Victoria & Vallée, Luc, 2010. "The size of banking crises in credible fixed exchange rate regimes," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1226-1236, November.
    10. Kristin J. Forbes, 2002. "Are Trade Linkages Important Determinants of Country Vulnerability to Crises?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 77-132, National Bureau of Economic Research, Inc.
    11. Victoria Miller & Luc Vallée, 2011. "Central Bank Balance Sheets and the Transmission of Financial Crises," Open Economies Review, Springer, vol. 22(2), pages 355-363, April.
    12. McKinnon, Ronald I. & Pill, Huw, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," World Development, Elsevier, vol. 26(7), pages 1267-1282, July.
    13. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," The World Bank Research Observer, World Bank, vol. 15(2), pages 177-197, August.
    14. Calvo, Sara & Reinhart, Carmen, 1996. "Capital flows to Latin America : Is there evidence of contagion effects?," Policy Research Working Paper Series 1619, The World Bank.
    15. Victor E. Vaugirard, 2004. "Informational Contagion of Sudden Stops in a Global Games Framework," Open Economies Review, Springer, vol. 15(2), pages 169-192, April.
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    Cited by:

    1. Yanping Zhao & Jakob Haan & Bert Scholtens & Haizhen Yang, 2014. "Leading Indicators of Currency Crises: Are They the Same in Different Exchange Rate Regimes?," Open Economies Review, Springer, vol. 25(5), pages 937-957, November.
    2. Ryota Nakatani, 2016. "Twin Banking and Currency Crises and Monetary Policy," Open Economies Review, Springer, vol. 27(4), pages 747-767, September.

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    More about this item

    Keywords

    Currency crisis; Self-justifying bank runs; Bailouts; Insolvency; F3; G2;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G2 - Financial Economics - - Financial Institutions and Services

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