Ongan, Tevfik Hakan and Karabulut, Gökhan (2004): A Simple Model Of Currency Crises And Budget Deficits: The Case Of Turkey. Published in: Maliye Araştırma Konferansları , Vol. 46, (2004): pp. 206-225.
Download (332kB) | Preview
The aim of this paper is to explore the determinants of currency crises and to illustrate the dynamic behaviour of the fundamental macroeconomic variables in a small open economy under a peg regime. The mainstream models in currency crises literature are not sufficiently available to explain the recent Turkish currency crisis observed in 2000. Turkey was successful to fix domestic credit at the same time with a crawling peg regime in order to achieve price stability. Furthermore, the political preferences were also in favour of continuing the program. Though these facts, the peg collapsed by a speculative attack. Depending on these issues, in our model, which uses a Keynesian framework augmented with a speculative foreign exchange market, it has been focused on the fundamental macroeconomic relationship between budget and trade deficits. Our theoretical model and the simulation results indicate that whether the deficit is financed by monetisation or domestic borrowing, persisting budget deficits cause the peg system to collapse. Overborrowing problems and deterioating balance sheets also play an important role on the unsustainability of the peg regime.
|Item Type:||MPRA Paper|
|Institution:||Maliye Araştırma Konferansları|
|Original Title:||A Simple Model Of Currency Crises And Budget Deficits: The Case Of Turkey|
|Keywords:||Currency Crises; Turkey; Budget Deficits; Balance of Payments; Peg Regime|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply; Credit; Money Multipliers
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
|Depositing User:||HAKAN ONGAN|
|Date Deposited:||17. Jan 2007|
|Last Modified:||13. Feb 2013 22:38|
Agenor, P., J. S. Bhandari and R. P. Flood, 1992. Speculative attacks and models of balance of payment crises, International Monetary Fund Staff Papers 39, 357-94. Calvo, G. A. and E. G Mendoza, 1996. Mexico’s balance of payments crisis: a chronicle of a death foretold, Journal of International Economics 41. 235-64. Calvo, G. A., 1994. Inflation stabilization and nominal anchors, Contemporary Economic Policy 12, 35-45. Dornbusch R., 1987. Collapsing exchange rate regimes, Journal of Development Economics 27, 71-83. Flood, R. P., P. Garber and C. Kramer, 1996. Collapsing exchange rate regimes: another linear example, Journal of International Economics 41, 223-34. Flood, R. P.and P. Garber, 1984. Collapsing exchange rate regimes: some linear example, Journal of International Economics 17, 1-13. Krugman, P., 1979. A model of balance of payments crises, Journal of Money, Credit And Banking 11, 311-25. Krugman, P., 1991. Target zones and exchange rate dynamics, Quarterly Journal of Economics 106, 669-82 Krugman, P., 1998. What Happened to Asia?, Mimeo, MIT. Obstfeld, M., 1986, Speculative attack and the external constraint in a maximizing model of the balance of payments, Canadian Journal Economics 19, 1-22. Obstfeld, M., 1996. Models of currency crises with self-fulfilling features, European Economic Review 40, 1037-48. Sachs, J., A. Tornell and A. Velasco, 1995(a). The Mexican peso crisis: Sudden death or death foretold, Journal of International Economics 41, 265-283. Sachs, J., A. Tornell and A. Velasco, 1995(b). The collapse of the Mexican peso: what have we learned, Working Paper 5142. Cambridge, Mass.: National Bureau of Economic Research, June. Salent, S. W. and D. W. Henderson, 1978. Market anticipations of government gold policy and the price of gold, Journal of Political Economy 86, 627-48. Velasco, A., 1987. Financial crises and balance of payments crises, Journal of Development Economics 27, 263-83.