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Policy Making and Speculative Attacks in Models of Exchange Rate Crisis : a Synthesis
Policy Implications of "Second-Generation" Crisis Models
Author: Mr.Robert P. Flood
Publisher: International Monetary Fund
Published: 1997-02-01
Total Pages: 12
ISBN-13: 1451843364
DOWNLOAD EBOOK →After the speculative attacks on government-controlled exchange rates in Europe and in Mexico, economists began to develop models of currency crises with multiple solutions. In these models, a currency crisis occurs when the economy suddenly jumps from one solution to another. This paper examines one of the new models, finding that raising the cost of devaluation may make a crisis more likely. Consequently, slow convergence to a monetary union, which increases the cost to the government of reneging on an exchange rate peg, may be counterproductive. This conclusion is exactly the opposite of that obtained from earlier models.
Speculative Attacks and Models of Balance of Payments Crises
Author: Mr.Robert P. Flood
Publisher: International Monetary Fund
Published: 1991-10-01
Total Pages: 64
ISBN-13: 1451852185
DOWNLOAD EBOOK →This paper reviews recent developments in the theoretical and empirical analysis of balance-of-payments crises. A simple analytical model highlighting the process leading to such crises is first developed. The basic framework is then extended to deal with a variety of issues, such as: alternative post-collapse regimes, uncertainty, real sector effects, external borrowing and capital controls, imperfect asset substitutability, sticky prices, and endogenous policy switches. Empirical evidence on the collapse of exchange rate regimes is also examined, and the major implications of the analysis for macroeconomic policy discussed.
Speculative Attacks and Currency Crises
Author: Ms.Inci Ötker
Publisher: International Monetary Fund
Published: 1995-11-01
Total Pages: 38
ISBN-13: 1451853548
DOWNLOAD EBOOK →This paper estimates a speculative attack model of currency crises in order to identify the role of economic fundamentals and any early warning signals of a potential currency crisis. The data from the Mexican economy was used to illustrate the model. Based on the results, a deterioration in fundamentals appears to have generated high one-step-ahead probabilities for the regime changes during the sample period 1982-1994. Particularly, increases in inflation differentials, appreciations of the real exchange rate, foreign reserve losses, expansionary monetary and fiscal policies, and increases in the share of short-term foreign currency debt appear to have contributed to the market pressures and regime changes in that period.
Policy Implications of "Second-Generation" Crisis Models
Author: Robert P. Flood
Publisher:
Published: 2006
Total Pages: 11
ISBN-13:
DOWNLOAD EBOOK →After the speculative attacks on government-controlled exchange rates in Europe and in Mexico, economists began to develop models of currency crises with multiple solutions. In these models, a currency crisis occurs when the economy suddenly jumps from one solution to another. This paper examines one of the new models, finding that raising the cost of devaluation may make a crisis more likely. Consequently, slow convergence to a monetary union, which increases the cost to the government of reneging on an exchange rate peg, may be counterproductive. This conclusion is exactly the opposite of that obtained from earlier models.
Self-Fulfilling Risk Predictions
Author: Mr.Robert P. Flood
Publisher: International Monetary Fund
Published: 1998-08-01
Total Pages: 35
ISBN-13: 1451854692
DOWNLOAD EBOOK →The paper shows that changing market beliefs about currency risk can generate a self-fulfilling speculative attack on a fixed exchange rate. The attack does not require a later change in policies to make it profitable. This is illustrated by introducing an endogenous risk premium into a “first-generation model” of a speculative attack. The model is further modified to take account of sterilization, debt-financed fiscal deficits, and anticipatory price-setting behavior. The model is used to interpret the 1994 Mexican peso crisis.
Speculative Attacks
Author: Mr.Guillermo Calvo
Publisher: International Monetary Fund
Published: 1991-01-01
Total Pages: 7
ISBN-13: 1451926510
DOWNLOAD EBOOK →A brief survey of the literature on speculative attacks is provided. The nature and causes of balance-of-payments crises, the implications for the behavior of the current account and the real exchange rate are discussed. Also, potential areas for future research on balance-of-payments crises are suggested.
Information Dissemination in Currency Crises
Author: Christina Evelies Metz
Publisher: Springer Science & Business Media
Published: 2012-12-06
Total Pages: 222
ISBN-13: 3642554717
DOWNLOAD EBOOK →As the complexity of financial markets keeps growing, so does the need to understand the decision-making and the coordination of the exsuing actions in the marketplace. In particular, the disclosure of information to market participants and its impact on the market outcome mertis attention. This study analyses the role of private and public information in currency crises. Calls for increased dissemination of economic and policy-related information by central banks notwithstanding, the study shows that transparency is not generally conductive to preventing speculative attacks in fixed exchange-rate regimes. Rather, the role of private and public information in the market-place depencs critically on the prevailing market sentiment. The study also highlights the import of market transparency design in an environment that allows for herding and market leadership of individual speculators.
Speculative Bubbles, Speculative Attacks, and Policy Switching
Author: Robert P. Flood
Publisher: MIT Press
Published: 1994
Total Pages: 528
ISBN-13: 9780262061698
DOWNLOAD EBOOK →The papers in this book are grouped into three sections: the first on price bubbles is primarily financial; the second on speculative attacks (on exchange rate regimes) is international in scope; and the third, on policy switching, is concerned with monetary policy.
