Rational and Self-fulfilling Balance-of-Payments Crises
Speculative attacks on a pegged exchange rate must sometimes occur ifasset-price paths are to be free of abnormal profit opportunities. Suchattacks are fully rational, as they reflect the market's response to aregime breakdown that is inevitable. The authors shows that under someexpectations about policy, balance-of-payments crises can also be purely self-fulfilling events. In such cases even a permanently viableregime may collapse, and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis. The behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack. Copyright 1986 by American Economic Association.
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Volume (Year): 76 (1986)
Issue (Month): 1 (March)
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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.:
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