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Financial policy and speculative runs with a crawling peg: Argentina 1979-1981

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  • Cumby, Robert E.
  • Van Wijnbergen, Sweder

Abstract

In this paper we present a model of a balance-of-payments crisis and use it to examine the Argentine experiment with a crawling peg between December 1978 and February 1981. The approach taken allows us to examine the evolution of a crisis when the collapse is not a perfectly-foreseen event. The implementation of the model yields plausible values of the one-month ahead probabilities of a collapse of the crawling peg. The probabilities exhibit a sharp increase in the middle of 1980 and indicate a significant loss of credibility throughout the remainder of the year. The results suggest that viability of an exchange rate regime depends strongly on the domestic credit policy followed by the authorities. If this policy is not consistent with the exchange rate policy pursued by the authorities, confidence in the exchange rate policy is undermined.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 27 (1989)
Issue (Month): 1-2 (August)
Pages: 111-127

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Handle: RePEc:eee:inecon:v:27:y:1989:i:1-2:p:111-127

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-66, February.
  2. Buiter, Willem H., 1987. "Borrowing to defend the exchange rate and the timing and magnitude of speculative attacks," Journal of International Economics, Elsevier, vol. 23(3-4), pages 221-239, November.
  3. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
  4. Lizondo, Jose Saul, 1983. "Foreign exchange futures prices under fixed exchange rates," Journal of International Economics, Elsevier, vol. 14(1-2), pages 69-84, February.
  5. Maurice Obstfeld, 1984. "Balance-of-Payments Crises and Devaluation," NBER Working Papers 1103, National Bureau of Economic Research, Inc.
  6. 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.
  7. Stulz, Rene M., 1987. "Time-varying risk premia, imperfect information and the forward: Exchange rate," International Journal of Forecasting, Elsevier, vol. 3(1), pages 171-177.
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Citations

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Cited by:
  1. William R. Melick, 1996. "Estimation of speculative attack models: Mexico yet again," BIS Working Papers 36, Bank for International Settlements.
  2. Ramon Moreno, 1995. "Macroeconomic behavior during periods of speculative pressure or realignment: evidence from Pacific Basin economies," Pacific Basin Working Paper Series 95-05, Federal Reserve Bank of San Francisco.
  3. Ziesemer,Thomas, 2005. "Unstable Debt/GDP Dynamics as an Early Warning Indicator," Research Memoranda 016, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
  4. Claessens, Stijn & Kose, Ayhan, 2013. "Financial Crises: Explanations, Types, and Implications," CEPR Discussion Papers 9329, C.E.P.R. Discussion Papers.
  5. Safdar Ullah Khan & Omar Farooq Saqib, 2007. "An Analysis of Pakistan’s Vulnerability to Economic Crisis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 597-610.
  6. Marcin Sasin, 2002. "Predicting Currency Crises, the Ultimate Significance of Macroeconomic Fundamentals in Linear Specifications with Nonlinear Extensions," CASE Network Studies and Analyses 0224, CASE-Center for Social and Economic Research.
  7. Mohammad Karimi & Marcel-Cristian Voia, 2011. "Empirics of Currency Crises: A Duration Analysis Approach," Carleton Economic Papers 11-11, Carleton University, Department of Economics.
  8. Christian C. Starck, 1989. "How are the key Finnish market interest rates determined?," Finnish Economic Papers, Finnish Economic Association, vol. 2(1), pages 39-47, Spring.
  9. Robert P. Flood & Juan Yepez & Nancy P. Marion, 2010. "A Perspective on Predicting Currency Crises," IMF Working Papers 10/227, International Monetary Fund.

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