Balance of Payments Crises in a Cash-in-Advance Economy

The author shows that a flexible-prices, Sidrauski-type model with a cash-in-advance constraint is capable of depicting some of the phenomena associated with a balance of payments crisis, like the onesrecently observed in Argentina and Mexico (current-accounts deficits, and appreciation of the real exchange rat e). It is also shown that these phenomena become exacerbated as the rate of devaluation (before the crisis occurs) becomes smaller.