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Economic Group

By Luke Gower, Alan Krause, Especially Adam Cagliarini and David Gruen

Abstract

Aart Kraay generously provided some of the data used in Section 2. Any errors are ours and the opinions expressed here should not be attributed to the Reserve Bank 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 a

Topics: currency crises, monetary policy i Table of Contents
Year: 2002
OAI identifier: oai:CiteSeerX.psu:10.1.1.199.8354
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