Speculative Attacks and Currency Crises

Speculative Attacks and Currency Crises PDF

Author: Ms.Inci Ötker

Publisher: International Monetary Fund

Published: 1995-11-01

Total Pages: 38

ISBN-13: 1451853548

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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.

Speculative Attacks and Currency Crises

Speculative Attacks and Currency Crises PDF

Author: 0nci Ltker

Publisher:

Published: 2006

Total Pages: 38

ISBN-13:

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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.

Perspectiveson the Recent Currency Crisis Literature

Perspectiveson the Recent Currency Crisis Literature PDF

Author: Mr.Robert P. Flood

Publisher: International Monetary Fund

Published: 1998-09-01

Total Pages: 52

ISBN-13: 1451855168

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In the 1990s, currency crises in Europe, Mexico, and Asia have drawn worldwide attention to speculative attacks on government-controlled exchange rates and have prompted researchers to undertake new theoretical and empirical analysis of these events. This paper provides some perspective on this work and relates it to earlier research. It derives the optimal commitment to a fixed exchange rate and proposes a common framework for analyzing currency crises. This framework stresses the important role of speculators and recognizes that the government’s commitment to a fixed exchange rate is constrained by other policy goals. The final section finds that some crises may be particularly difficult to predict using currently popular methods.

Speculative Attacks and Models of Balance of Payments Crises

Speculative Attacks and Models of Balance of Payments Crises PDF

Author: Mr.Robert P. Flood

Publisher: International Monetary Fund

Published: 1991-10-01

Total Pages: 64

ISBN-13: 1451852185

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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.

Self-Fulfilling Risk Predictions

Self-Fulfilling Risk Predictions PDF

Author: Mr.Robert P. Flood

Publisher: International Monetary Fund

Published: 1998-08-01

Total Pages: 35

ISBN-13: 1451854692

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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.

Information Dissemination in Currency Crises

Information Dissemination in Currency Crises PDF

Author: Christina Evelies Metz

Publisher: Springer Science & Business Media

Published: 2012-12-06

Total Pages: 222

ISBN-13: 3642554717

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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.

Currency Crises

Currency Crises PDF

Author: Paul Krugman

Publisher: University of Chicago Press

Published: 2007-12-01

Total Pages: 367

ISBN-13: 0226454649

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There is no universally accepted definition of a currency crisis, but most would agree that they all involve one key element: investors fleeing a currency en masse out of fear that it might be devalued, in turn fueling the very devaluation they anticipated. Although such crises—the Latin American debt crisis of the 1980s, the speculations on European currencies in the early 1990s, and the ensuing Mexican, South American, and Asian crises—have played a central role in world affairs and continue to occur at an alarming rate, many questions about their causes and effects remain to be answered. In this wide-ranging volume, some of the best minds in economics focus on the historical and theoretical aspects of currency crises to investigate three fundamental issues: What drives currency crises? How should government behavior be modeled? And what are the actual consequences to the real economy? Reflecting the latest thinking on the subject, this offering from the NBER will serve as a useful basis for further debate on the theory and practice of speculative attacks, as well as a valuable resource as new crises loom.

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