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Implications of within-period timing in models of speculative attack

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  • Antonio Doblas-Madrid

    ()
    (Department of Economics, Michigan State University)

Abstract

Speculative attacks are often modeled as decreases in money demand before currency crises. I discuss how, in models with microfoundations, within-period timing affects whether attacks arise in equilibrium. “Cash-when-I'm-done” timing always generates attacks, but is controversial because it assumes that end-of-period money balances buy current consumption. Cash-in-advance timing, theoretically more appealing, generates attacks only under restrictive assumptions. These issues arise when money is introduced via liquidity constraints, the utility function, or a transactions technology. Modeling attacks via reductions in demand for domestic bonds, instead of reductions in money demand, helps avoid these issues, and may be more realistic.

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File URL: http://www.accessecon.com/pubs/EB/2007/Volume6/EB-07F30006A.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 6 (2007)
Issue (Month): 28 ()
Pages: 1-10

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Handle: RePEc:ebl:ecbull:eb-07f30006

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  1. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  2. Maurice Obstfeld, 1984. "Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments," NBER Working Papers 1437, National Bureau of Economic Research, Inc.
  3. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  4. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
  5. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  6. Beaudry, Paul & van Wincoop, Eric, 1996. "The Intertemporal Elasticity of Substitution: An Exploration Using a US Panel of State Data," Economica, London School of Economics and Political Science, vol. 63(251), pages 495-512, August.
  7. Charles T. Carlstrom & Timothy S. Fuerst, 2001. "Timing and real indeterminacy in monetary models," Working Paper 9910R, Federal Reserve Bank of Cleveland.
  8. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  9. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2004. "Government guarantees and self-fulfilling speculative attacks," Journal of Economic Theory, Elsevier, vol. 119(1), pages 31-63, November.
  10. Calvo, Guillermo A, 1987. "Balance of Payments Crises in a Cash-in-Advance Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 19-32, February.
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