Currency crises

Question 1

Crises defined by quantative tresholds

3 types

Answer 1

1. Inflation crises
2. Currecny chrashes & currency debasements
3. Bursting of asset bubbles

Question 2

Crises defined by events

3 crises

Answer 2

1. banking crises
2. External debt crises
3. Domestic debt crises

Question 3

Currency crises definition

Qualitative (theoretical)

Answer 3

The exchange rate depreciates substantially during a short period of time. Currency crises hit currencies that are pegged or heavily managed.

Question 4

Currency crises definitio

Quantitative (empirical)

Answer 4

A depreciation (devaluation) of at least 15% within month

Question 5

Exchange rate pressure index

Definition

Answer 5

Weighted average of the monthly change in nominal exchange rate and the change in foreign reserves

Question 6

1ste generation model

Small open economy, exchange rate fixed to a currency of a large partner

Answer 6

Interaction of the government and private agents in the domestic money market

Unsustainable fiscal policy leads to currency crisis

Question 7

Purchasing Power Parity

Answer 7

Pt = E Pster
Pt = E peg

P ster constant over time and exchange rate peg

Question 8

Uncovered Intrest Parity

Answer 8

1 + i = (1 + r)Et+1/Et
Exchange rate peg: i = r

Question 9

Government budget contraint

Answer 9

Et (Btg - Bt-1g) + PtGt = PtTt + (Mt - Mt-1) + Etr Bt-1g

development of gov forg asset = seignorage - second fiscal deficit

Question 10

2nd generation model

Answer 10

Philipscurve, loss function and multiple equilibria