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Currency crisis duration and interest defence

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  • Tullio Gregori

    (Dipartimento di Scienze Economiche e Statistiche, Universit� degli Studi di Trieste, Italy)

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    Abstract

    Asymmetric wars of attrition between speculators and a Central Bank can provide a useful framework to address currency crisis length and explain why a speculative attack can fail after some time. Interest rate defence can be analysed too. A non-linear relationship between interest rates and peg defence emerges, as a rate upsurge can reduce both concession times. With some welfare loss functions, increasing the domestic rate too much is a self-defeating policy as the Central Bank will opt out before speculators concede, but the reverse holds for lower rates. Copyright © 2008 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.372
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 14 (2009)
    Issue (Month): 3 ()
    Pages: 256-267

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    Handle: RePEc:ijf:ijfiec:v:14:y:2009:i:3:p:256-267

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    Cited by:
    1. Shinji Takagi, 2010. "Applying the Lessons of Asia : The IMF’s Crisis Management Strategy in 2008," Macroeconomics Working Papers 22822, East Asian Bureau of Economic Research.
    2. Shinji Takagi, 2010. "Applying the Lessons of Asia: The IMF’s Crisis Management Strategy in 2008," Working Papers id:3006, eSocialSciences.

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