Advanced Search
MyIDEAS: Login

How to avoid self-fulfilling crises

Contents:

Author Info

  • Virginie Boinet

    ()

Registered author(s):

    Abstract

    Obstfeld (1994) shows that a currency crisis can be explained by the occurrence of multiple equilibria (2 interior equilibria). For the same level of economic fundamentals, it may be optimal for the government either to devalue or to maintain the peg. The decision depends on the inßationary expectations of economic agents: it is the phenomenon of self-fulÞlling crisis. In order to avoid this kind of crisis, this article o?ers a new proposal: a partial delegation of exchange rate policy to a more inßation-averse central banker. It shows that if the government continues to decide whether to maintain the peg while the central banker chooses the magnitude of any realignment, lower inflationary expectations will lead to the existence of only one equilibrium. The probability of crisis will then be considerably reduced and a currency crisis will occur only if negative shocks substantially damage the level of economic fundamentals.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.brunel.ac.uk/329/efwps/02-02.pdf
    Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (John.Hunter)
    Download Restriction: no

    Bibliographic Info

    Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 02-02.

    as in new window
    Length: 15 pages
    Date of creation:
    Date of revision:
    Handle: RePEc:bru:bruedp:02-02

    Contact details of provider:
    Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bru:bruedp:02-02. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John.Hunter).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.