Self-Fulfilling Risk Predictions
AbstractThe paper shows that changing market beliefs about currency risk can generate a self-fulfilling speculative attack on a fixed exchange rate. The attack does not require a later change in policies to make it profitable. This is illustrated by introducing an endogenous risk premium into a “first-generation model” of a speculative attack. The model is further modified to take account of sterilization, debt-financed fiscal deficits, and anticipatory price-setting behavior. The model is used to interpret the 1994 Mexican peso crisis.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 98/124.
Date of creation: 01 Aug 1998
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- Leonidas E. De la Rosa, 1999.
"Ataques Especulativos:Un Enfoque De Incertidumbre E Información,"
BORRADORES DE ECONOMIA
002033, BANCO DE LA REPÚBLICA.
- Leonidas E. de la Rosa, . "Ataques Especulativos: Un Enfoque de Incertidumbre e Información," Borradores de Economia 130, Banco de la Republica de Colombia.
- Nada Choueiri, 1999. "A Model of Contagious Currency Crises with Application to Argentina," IMF Working Papers 99/29, International Monetary Fund.
- Pasricha, Gurnain Kaur, 2006. "Survey of Literature on Covered and Uncovered Interest Parities," MPRA Paper 22737, University Library of Munich, Germany.
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