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Finanial Policy and Speculative Runs with a Crawling Peg: Argentina 1979-1981

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  • Robert E. Cumby
  • Sweder van Wijnbergen

Abstract

In this paper we present a model of a balance-of-payments crisis and use it to examine the Argentine experiment with a crawling peg between December 1978 and February 1981. The approach taken allows us to examine the evolution of a crisis when the collapse is not a perfectly-foreseen event. The implementation of the model yields plausible values of the one-month ahead probabilities of a collapse of the crawling peg. The probabilities exhibit a sharp increase in the middle of 1980 and indicate a significant loss of credibility throughout the remainder of the year. The results suggest that viability of an exchange rate regime depends strongly on the domestic credit policy followed by the authorities. If this policy is not consistent with the exchange rate policy pursued by the authorities, confidence in the exchange rate policy is undermined.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2376.

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Date of creation: Aug 1987
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Publication status: published as Journal of International Economics, vol. 27, no.1/2, pp. 111-127, August 1989.
Handle: RePEc:nbr:nberwo:2376

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  1. Willem H. Buiter, 1986. "Borrowing to Defend the Exchange Rate and the Timing and Magnitude of Speculative Attacks," NBER Working Papers 1844, National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
  3. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 148-66, February.
  4. Maurice Obstfeld, 1983. "Balance-of-Payments Crises and Devaluation," NBER Working Papers 1103, National Bureau of Economic Research, Inc.
  5. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, Elsevier, vol. 17(1-2), pages 1-13, August.
  6. Stulz, Rene M., 1987. "Time-varying risk premia, imperfect information and the forward: Exchange rate," International Journal of Forecasting, Elsevier, Elsevier, vol. 3(1), pages 171-177.
  7. Lizondo, Jose Saul, 1983. "Foreign exchange futures prices under fixed exchange rates," Journal of International Economics, Elsevier, Elsevier, vol. 14(1-2), pages 69-84, February.
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Cited by:
  1. Robert P. Flood & Juan Yepez & Nancy P. Marion, 2010. "A Perspectiveon Predicting Currency Crises," IMF Working Papers 10/227, International Monetary Fund.
  2. Ziesemer,Thomas, 2005. "Unstable Debt/GDP Dynamics as an Early Warning Indicator," Research Memorandum, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) 016, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  3. Lin, Chin-Shien & Khan, Haider A. & Chang, Ruei-Yuan & Wang, Ying-Chieh, 2008. "A new approach to modeling early warning systems for currency crises: Can a machine-learning fuzzy expert system predict the currency crises effectively?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(7), pages 1098-1121, November.
  4. William R. Melick, 1996. "Estimation of speculative attack models: Mexico yet again," BIS Working Papers 36, Bank for International Settlements.
  5. Ramon Moreno, 1995. "Macroeconomic behavior during periods of speculative pressure or realignment: evidence from Pacific Basin economies," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 95-05, Federal Reserve Bank of San Francisco.
  6. Mohammad Karimi & Marcel-Cristian Voia, 2011. "Empirics of Currency Crises: A Duration Analysis Approach," Carleton Economic Papers, Carleton University, Department of Economics 11-11, Carleton University, Department of Economics.
  7. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises Explanations, Types, and Implications," IMF Working Papers 13/28, International Monetary Fund.
  8. repec:dgr:uvatin:2011064 is not listed on IDEAS
  9. Marcin Sasin, 2002. "Predicting Currency Crises, the Ultimate Significance of Macroeconomic Fundamentals in Linear Specifications with Nonlinear Extensions," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0224, CASE-Center for Social and Economic Research.
  10. Christian C. Starck, 1989. "How are the key Finnish market interest rates determined?," Finnish Economic Papers, Finnish Economic Association, Finnish Economic Association, vol. 2(1), pages 39-47, Spring.
  11. Lean Yu & Kin Keung Lai & Shou-Yang Wang, 2006. "Currency Crisis Forecasting With General Regression Neural Networks," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 437-454.
  12. Tassos G. Anastasatos & Ian R. Davidson, 2006. "How Homogenous are Currency Crises? A Panel Study Using Multiple-Response Models," Working Papers, Bank of Greece 52, Bank of Greece.
  13. van Wijnbergen, Sweder & Rocha, Robert & Anand, Ritu, 1989. "Inflation, external debt, and financial sector reform : a quantitative approach to consistent fiscal policy," Policy Research Working Paper Series 261, The World Bank.
  14. Dilip K. Das, 2001. "Stimulants to capital inflows into emerging markets and the recent role of speculators," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(1), pages 25-44.
  15. Safdar Ullah Khan & Omar Farooq Saqib, 2007. "An Analysis of Pakistan s Vulnerability to Economic Crisis," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 46(4), pages 597-610.

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