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Currency Crises and Macroeconomic Performance

Author

Listed:
  • Luke Gower

    (Reserve Bank of Australia)

  • Alan Krause

    (Reserve Bank of Australia)

Abstract

This paper presents some theory and evidence on the implications of sudden currency depreciations for output and inflation. It identifies some of the characteristics shared by countries which have suffered falling output in the aftermath of a currency crisis, and it presents a small model which rationalises aspects of this common experience. The model is then used to derive the optimal monetary policy response to a crisis. A key result is that a currency crisis which coincides with a banking crisis is more likely to depress output and may call for an accommodating monetary policy.

Suggested Citation

  • Luke Gower & Alan Krause, 2002. "Currency Crises and Macroeconomic Performance," RBA Research Discussion Papers rdp2002-08, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2002-08
    as

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    File URL: https://www.rba.gov.au/publications/rdp/2002/pdf/rdp2002-08.pdf
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    References listed on IDEAS

    as
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    6. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
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    More about this item

    Keywords

    currency crises; monetary policy;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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