{
  "title": "The Role of Institutional Quality in a Currency Crisis Model",
  "publication": "IMF Working Papers, January 1, 2008",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/the-role-of-institutional-quality-in-a-currency-crisis-model-21545",
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  "summary": "This paper is a theoretical study of the impact of institutional quality on currency crises from a public finance point of view. Recent empirical studies leave little doubt that weak institutions, including high levels of corruption, hinder economic performance.",
  "sections": [
    {
      "heading": "Research question and approach",
      "content": "- The paper is a theoretical study of the impact of institutional quality on currency crises from a public finance point of view.\n- Institutional weakness is modeled as an inefficiency of the tax collection system.\n- Motivating context: recent empirical studies indicate weak institutions, including high levels of corruption, hinder economic performance; after the East Asian crisis, observers pointed to widespread corruption and crony capitalism as underlying causes.\n- The study addresses a gap: limited empirical and especially theoretical studies on the link between institutional quality and currency crises."
    },
    {
      "heading": "Key findings",
      "content": "- Institutional weakness generally increases the likelihood of the existence of a self-fulfilling crisis equilibrium.\n- Institutional weakness leads to larger currency devaluation when crises happen.\n- The relationship can reverse when institutional weakness is very severe."
    },
    {
      "heading": "Policy-relevant implications (implicit from model results)",
      "content": "- Strengthening tax collection efficiency and institutional quality can reduce the likelihood of self-fulfilling currency crisis equilibria.\n- Improvements in revenue administration and reductions in institutional inefficiencies could mitigate the magnitude of currency devaluations in crisis episodes.\n- Very severe institutional breakdowns may produce non-monotonic effects, suggesting policy priorities should address both incremental improvements and prevention of extreme institutional deterioration.\n\n---\n\n Content in this bundle\n\n- 1. Self-fulfilling Currency Crises\n  - 1. Self-fulfilling Currency Crises (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 1. Self-fulfilling Currency Crises (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-role-of-institutional-quality-in-a-currency-crisis-model-21545"
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    "Authors: Yi Wu",
    "Published: January 1, 2008",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451868678.001",
    "The paper is a theoretical study of the impact of institutional quality on currency crises from a public finance point of view.",
    "Institutional weakness is modeled as an inefficiency of the tax collection system.",
    "Motivating context: recent empirical studies indicate weak institutions, including high levels of corruption, hinder economic performance; after the East Asian crisis, observers pointed to widespread corruption and crony capitalism as underlying causes.",
    "The study addresses a gap: limited empirical and especially theoretical studies on the link between institutional quality and currency crises.",
    "Institutional weakness generally increases the likelihood of the existence of a self-fulfilling crisis equilibrium.",
    "Institutional weakness leads to larger currency devaluation when crises happen.",
    "The relationship can reverse when institutional weakness is very severe.",
    "Strengthening tax collection efficiency and institutional quality can reduce the likelihood of self-fulfilling currency crisis equilibria.",
    "Improvements in revenue administration and reductions in institutional inefficiencies could mitigate the magnitude of currency devaluations in crisis episodes.",
    "Very severe institutional breakdowns may produce non-monotonic effects, suggesting policy priorities should address both incremental improvements and prevention of extreme institutional deterioration.",
    "**1. Self-fulfilling Currency Crises**"
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