Government guarantees and self-fulfilling speculative attacks

Abstract

This paper explores the role played by government guarantees to banks’ foreign creditors as a root cause of self-fulfilling twin banking-currency crises. We develop a general equilibrium model in which such guarantees lead to these types of crises. Absent government guarantees, such crises are not possible. The model has three key properties. First, in the… (More)
DOI: 10.1016/j.jet.2003.06.002

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