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Speculation and the Decision to Abandon a Fixed Exchange Rate Regime

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Author Info
Pastine, Ivan

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Abstract

This Paper demonstrates that the implications of first-generation speculative attack models do not hold if there is a rational, forward-looking policy maker. The policy maker will be able to avoid predictable speculative attacks by introducing uncertainty into the decisions of speculators. This changes the sudden attack into a prolonged period of increasing speculation and uncertainty. In addition, the model provides useful insights into the viability of temporary nominal anchor policies, and a theoretical foundation for a useful empirical methodology.

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Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2893.

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Date of creation: Jul 2001
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Handle: RePEc:cpr:ceprdp:2893

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Related research
Keywords: nominal anchor; optimizing BOP crises; speculative attacks;

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F31 - International Economics - - International Finance - - - Foreign Exchange

References listed on IDEAS
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  1. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
    Other versions:
  2. Blackburn, Keith & Sola, Martin, 1993. " Speculative Currency Attacks and Balance of Payments Crises," Journal of Economic Surveys, Blackwell Publishing, vol. 7(2), pages 119-44, June.
  3. Velasco, Andres, 1997. "When are fixed exchange rates really fixed?," Journal of Development Economics, Elsevier, vol. 54(1), pages 5-25, October. [Downloadable!] (restricted)
  4. F Gulcin Ozkan & Alan Sutherland, . "A Model of the ERM Crisis," Discussion Papers 94/2, Department of Economics, University of York.
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  5. Flood, Robert P. & Garber, Peter M. & Kramer, Charles, 1996. "Collapsing exchange rate regimes: Another linear example," Journal of International Economics, Elsevier, vol. 41(3-4), pages 223-234, November. [Downloadable!] (restricted)
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  6. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March. [Downloadable!] (restricted)
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  7. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-48, August. [Downloadable!] (restricted)
  8. Benabou, Roland, 1989. "Optimal Price Dynamics and Speculation with a Storable Good," Econometrica, Econometric Society, vol. 57(1), pages 41-80, January. [Downloadable!] (restricted)
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  9. Robert Flood & Nancy Marion, 1998. "Perspectives on the Recent Currency Crisis Literature," NBER Working Papers 6380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Davies, Gareth & Vines, David, 1995. "Equilibrium Currency Crises: Are Multiple Equilibria Self-fulfilling or History Dependent?," CEPR Discussion Papers 1239, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Guidotti, Pablo E & Vegh, Carlos A, 1999. "Losing Credibility: The Stabilization Blues," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 23-51, February.
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  12. Andersen, Torben M, 1994. "Shocks and the Viability of a Fixed Exchange Rate Commitment," CEPR Discussion Papers 969, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Flood, Robert P & Garber, Peter M, 1984. "Gold Monetization and Gold Discipline," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 90-107, February. [Downloadable!] (restricted)
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  14. Velasco, Andres, 1994. "Are Balance of Payments Crises Rational?," Working Papers 94-08, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  15. Simon, Leo K & Stinchcombe, Maxwell B, 1989. "Extensive Form Games in Continuous Time: Pure Strategies," Econometrica, Econometric Society, vol. 57(5), pages 1171-1214, September. [Downloadable!] (restricted)
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  16. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August. [Downloadable!] (restricted)
  17. Robert P. Flood & Pierre-Richard Agénor & Jagdeep S. Bhandari, 1991. "Speculative Attacks and Models of Balance of Payments Crises," IMF Working Papers 91/99, International Monetary Fund.
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  18. Jeanne, Olivier, 1997. "Are currency crises self-fulfilling?: A test," Journal of International Economics, Elsevier, vol. 43(3-4), pages 263-286, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bernardo Guimaraes, 2008. "Vulnerability of Currency Pegs: Evidence from Brazil," CEP Discussion Papers dp0871, Centre for Economic Performance, LSE. [Downloadable!]
  2. Tullio Gregori, 2009. "Currency crisis duration and interest defence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 256-267. [Downloadable!]
  3. Gara Minguez-Afonso, 2007. "Imperfect Common Knowledge in First-Generation Models of Currency Crises," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 81-112, March. [Downloadable!]
    Other versions:
  4. Yuk-shing CHENG & Chi-shing CHAN & Chor-yiu SIN, 2004. "Currency attack/defense with two-sided private information," Econometric Society 2004 Far Eastern Meetings 395, Econometric Society. [Downloadable!]
  5. Guimarães, Bernardo, 2007. "Currency Crisis Triggers: Sunspots or Thresholds?," CEPR Discussion Papers 6487, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Fernando Broner, 2003. "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises," Economics Working Papers 839, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2007. [Downloadable!]
    Other versions:
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