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Non-Uniqueness in the First Generation Balance of Payments Crisis Model

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  • Partha Sen

    (Delhi University)

Abstract

Krugman (1979), building on Salant and Henderson(1978), showed that for a small open economy following policies inconsistent with the fixed exchange rate regime it is on, there is a precise moment when the fixed exchange rate regime would be abandoned. I show that Krugman's original model is riddled with multiple equilibria. The Central Bank may be in possession of a lot of foreign exchange reserves but not an "adequate amount" i.e., not enough to maintain a fixed exchange rate.
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  • Partha Sen, 2000. "Non-Uniqueness in the First Generation Balance of Payments Crisis Model," Econometric Society World Congress 2000 Contributed Papers 1182, Econometric Society.
    • Handle: RePEc:ecm:wc2000:1182
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    References listed on IDEAS

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    1. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-597, June.
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