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How Can Fiscal Policy Help Avert Currency Crises?

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  • Mr. George Kopits

Abstract

An overview of crisis episodes in emerging-market economies with a pegged exchange rate regime in the 1990s suggests that sizable explicit or implicit government deficits, or market perceptions of lack of fiscal sustainability, render these economies vulnerable to currency crises under high capital mobility. It is argued in the paper that vulnerability to crisis can be mitigated by signaling a phased fiscal adjustment that involves credible implementation of key structural measures. In particular, fiscal policy rules, such as the ones being adopted in a number of emerging-market economies, constitute a potentially useful tool of crisis prevention.

Suggested Citation

  • Mr. George Kopits, 2000. "How Can Fiscal Policy Help Avert Currency Crises?," IMF Working Papers 2000/185, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/185
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    Cited by:

    1. Most Asikha Aktar & Mu’ath Hesham Metlaq Al-Azzam & Md. Mahmudul Alam, 2021. "Fair Debts Management for Sustainable Development," Post-Print hal-03520105, HAL.
    2. Dubravko Mihaljek & Bruno Tissot, 2003. "Fiscal positions in emerging econimies: central banks' perspective," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal issues and central banking in emerging economies, volume 20, pages 10-37, Bank for International Settlements.
    3. Jürgen von Hagen & Iulia Siedschlag, 2010. "Managing Capital Flows: Experiences from Central and Eastern Europe," Chapters, in: Masahiro Kawai & Mario B. Lamberte (ed.), Managing Capital Flows, chapter 7, Edward Elgar Publishing.
    4. Jansen, K., 2002. "The scope for fiscal policy : with examples from Thailand," ISS Working Papers - General Series 19127, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    5. Ms. Garima Vasishtha & Mr. Taimur Baig & Mr. Manmohan S. Kumar & Ms. Edda Zoli, 2006. "Fiscal and Monetary Nexus in Emerging Market Economies: How Does Debt Matter?," IMF Working Papers 2006/184, International Monetary Fund.
    6. Edda Zoli, 2005. "How does fiscal policy affect monetary policy in emerging market countries?," BIS Working Papers 174, Bank for International Settlements.
    7. Ms. Pritha Mitra, 2006. "Post-Crisis Recovery: When Does Increased Fiscal Discipline Work?," IMF Working Papers 2006/219, International Monetary Fund.
    8. de Mendonça, Helder Ferreira & Machado, Marcelo Rangel, 2013. "Public debt management and credibility: Evidence from an emerging economy," Economic Modelling, Elsevier, vol. 30(C), pages 10-21.
    9. Ramkishen S. Rajan, 2007. "Managing new-style currency crises: the swan diagram approach revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(5), pages 583-606.

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