A Model of the Interactions between Banking Crises and Currency Crises
A second-generation model of currency crises is combined with a standard banking model. In a pegged exchange rate regime, after funds have been committed to the banks, news arrives about the quality of the banks' assets and about the exchange rate fundamentals. A run on the banks may cause a currency crisis, or vice versa. There are multiple equilibria (with either twin crises or no crisis), depending on depositors' expectations of other depositors' actions. Suspension of deposit convertibility can prevent a speculative attack on the currency, but last resort lending to solvent banks can induce one.
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| Main Authors: | , , |
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| Format: | Journal Article biblioteca |
| Language: | EN |
| Published: |
2008
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| Subjects: | Foreign Exchange F310, International Monetary Arrangements and Institutions F330, Banks, Other Depository Institutions, Micro Finance Institutions, Mortgages G210, |
| Online Access: | http://hdl.handle.net/10986/5425 |
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| Summary: | A second-generation model of currency crises is combined with a standard banking model. In a pegged exchange rate regime, after funds have been committed to the banks, news arrives about the quality of the banks' assets and about the exchange rate fundamentals. A run on the banks may cause a currency crisis, or vice versa. There are multiple equilibria (with either twin crises or no crisis), depending on depositors' expectations of other depositors' actions. Suspension of deposit convertibility can prevent a speculative attack on the currency, but last resort lending to solvent banks can induce one. |
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