IMF Working Papers

How Can Fiscal Policy Help Avert Currency Crises?

By George Kopits

November 1, 2000

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George Kopits. How Can Fiscal Policy Help Avert Currency Crises?, (USA: International Monetary Fund, 2000) accessed November 23, 2024
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.

Subject: Contingent liabilities, Currency crises, Economic sectors, Financial crises, Fiscal policy, Public financial management (PFM), Public sector

Keywords: Asia and Pacific, Authority, Balance of payments, Balance of payments crises, Balance-of-payments crisis, Contingent liabilities, Crisis, Currency crises, Eastern Europe, Exchange rate, Exchange rate rule, Fiscal policy, Government control, Government employee, Government institution, Open economy, Public sector, Public sector liability, Stabilization fund, WP

Publication Details

  • Pages:

    16

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2000/185

  • Stock No:

    WPIEA1852000

  • ISBN:

    9781451859409

  • ISSN:

    1018-5941

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