Do exchange rate bubbles deflate faster than they inflate?
AbstractSome theories predict that exchange rate bubbles should deflate faster than they inflate. We find no empirical support for this hypothesis for currencies that floated against the US dollar. The bursting of exchange rate bubbles is not analogous to collapses in the prices of financial assets. Financial asset prices tend to fall faster than they rise, which suggests that the same might be true of relatively risky currencies. We find no evidence that other currencies depreciate faster against the US dollar than they appreciate, even though the US dollar is commonly regarded as a potential safe-haven currency. This is true even of emerging-market currencies.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 29 (2009)
Issue (Month): 3 ()
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exchange rates; price bubbles; risk;
Find related papers by JEL classification:
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- F3 - International Economics - - International Finance
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