What is it about?
Do types of shocks matter for output costs of currency crisis? This paper analyzes the effects of real shocks and financial shocks on output during currency crisis.
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Why is it important?
We found that both the productivity shocks and the country risk premium shocks can influence output dynamics, although the effects of the productivity shocks are much larger than the other shocks. The risk premium shock increases the output during normal times but reduces output during crises. This implies that an export channel prevails in normal periods, while the balance sheet channel dominates during currency crisis periods.
Perspectives
This is the first research that sheds light on the roles of shocks when estimating output costs of currency crisis and banking crisis. Productivity shocks, exchange rate overvaluation, banking crisis and business cycles are found to be more important factors for output declines than the effects of macroeconomic policies during currency crises.
Dr. Ryota Nakatani
International Monetary Fund
Read the Original
This page is a summary of: Output Costs of Currency Crisis and Banking Crisis: Shocks, Policies and Cycles, Comparative Economic Studies, June 2018, Springer Science + Business Media,
DOI: 10.1057/s41294-018-0069-1.
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