How Can Fiscal Policy Help Avert Currency Crises?

Author/Editor:

George Kopits

Publication Date:

November 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

An overview of crisis episodes in emerging-market economies with a pegged exchange rate regime in the 1990s suggests that sizable explicit or implicit government deficits, or market perceptions of lack of fiscal sustainability, render these economies vulnerable to currency crises under high capital mobility. It is argued in the paper that vulnerability to crisis can be mitigated by signaling a phased fiscal adjustment that involves credible implementation of key structural measures. In particular, fiscal policy rules, such as the ones being adopted in a number of emerging-market economies, constitute a potentially useful tool of crisis prevention.

Series:

Working Paper No. 00/185

Subject:

English

Publication Date:

November 1, 2000

ISBN/ISSN:

9781451859409/1018-5941

Stock No:

WPIEA1852000

Format:

Paper

Pages:

16

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