Multiple Choices: Economic Policies in Crisis

Abstract

Debt crises have occurred in highly developed countries at the center of the world economy with large and sophisticated financial systems and enormous volumes of transactions in complex instruments. They have equally occurred in peripheral and emerging countries where debt contracts have been plain and simple and the outstanding volume of obligations much smaller in relation to GDP. They have occurred in countries where the domestic standard of denomination of financial contracts entirely dominates and in countries largely relying on foreign currencies. In many cases, they have been preceded by large current account deficits; in others by rough external balance or even a surplus. The build-up to some crises has involved substantial budget deficits, but this has not always been the case — even if in the end the crisis itself may produce fiscal trouble.