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Macroeconomic behavior during periods of speculative pressure or realignment: evidence from Pacific Basin economies

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  • Ramon Moreno

Abstract

This paper uses nonparametric tests to provide a description of the "stylized facts" associated with episodes of speculative pressure in foreign exchange markets in Pacific Basin Economies and to see whether these "stylized facts" appear to be broadly consistent with the alternative explanations for such episodes suggested in the theoretical literature. ; The empirical results are mixed, but some are nonetheless suggestive. Larger budget deficits and growth in central bank domestic credit appear to be associated with episodes of depreciation rather than episodes of appreciation or periods of tranquility, indicating that unusually expansionary or contractionary policies may contribute to speculative pressures in foreign exchange markets. There also is some evidence that episodes of speculative pressure may arise when economic conditions make it costly for the government to maintain a stable exchange rate.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1995)
Issue (Month): ()
Pages: 3-16

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Handle: RePEc:fip:fedfer:y:1995:p:3-16:n:3

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Keywords: Foreign exchange ; Budget deficits ; Pacific Area;

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References

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  1. Maurice Obstfeld, 1991. "Destabilizing Effects of Exchange-Rate Escape Clauses," NBER Working Papers 3603, National Bureau of Economic Research, Inc.
  2. Barry Eichengreen, Andrew K. Rose, and Charles Wyplosz., 1995. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C95-046, University of California at Berkeley.
  3. Goldberg, Linda S., 1990. "Predicting Exchange Rate Crises: Mexico Revisited," Working Papers, C.V. Starr Center for Applied Economics, New York University 90-11, C.V. Starr Center for Applied Economics, New York University.
  4. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 589-610, August.
  5. Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, Elsevier, vol. 20(1-2), pages 143-156, February.
  6. Reuven Glick & Michael Hutchison, 1992. "Monetary policy, intervention, and exchange rates in Japan," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Sep.
  7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  8. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 148-66, February.
  9. Cumby, Robert E. & Van Wijnbergen, Sweder, 1989. "Financial policy and speculative runs with a crawling peg: Argentina 1979-1981," Journal of International Economics, Elsevier, Elsevier, vol. 27(1-2), pages 111-127, August.
  10. Reuven Glick & Ramon Moreno, 1994. "Capital flows and monetary policy in East Asia," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 94-08, Federal Reserve Bank of San Francisco.
  11. Allan Drazen & Paul R. Masson, 1993. "Credibility of Policies versus Credibility of Policymakers," NBER Working Papers 4448, National Bureau of Economic Research, Inc.
  12. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
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