A Model Of Balance Of Payments Crises

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Explain me topic Model Of Balance Of Payments Crises due to External.

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Conventional, first-generation models of balance-of-payments crises emphasize inconsistencies between the exchange rate, fiscal policy, and monetary policy (Krugman 1979; Flood and Garber 1984; Calvo 1987). These models all suppose that a domestic credit expansion inconsistent with the fixed exchange rate gives rise to a speculative attack that forces the exchange rate to be abandoned. The expansion of domestic credit which triggers the crisis is associated with the government’s fiscal deficit, either directly or indirectly. When we consider a consolidated government in order to formalize BOP crises, either the fiscal deficit level or the domestic credit expansion rate must be exogenous, and the other must be endogenous. This ensures that the consolidated government’s budget constraint is satisfied.

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Model Of Balance Of Payments Crises due to External

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