IDEAS home Printed from
   My bibliography  Save this article

Do exchange rate bubbles deflate faster than they inflate?


  • Michael Bleaney

    () (University of Nottingham)

  • Zhiyong Li

    () (University of Nottingham)


Some theories predict that exchange rate bubbles should deflate faster than they inflate. We find no empirical support for this hypothesis for currencies that floated against the US dollar. The bursting of exchange rate bubbles is not analogous to collapses in the prices of financial assets. Financial asset prices tend to fall faster than they rise, which suggests that the same might be true of relatively risky currencies. We find no evidence that other currencies depreciate faster against the US dollar than they appreciate, even though the US dollar is commonly regarded as a potential safe-haven currency. This is true even of emerging-market currencies.

Suggested Citation

  • Michael Bleaney & Zhiyong Li, 2009. "Do exchange rate bubbles deflate faster than they inflate?," Economics Bulletin, AccessEcon, vol. 29(3), pages 1542-1548.
  • Handle: RePEc:ebl:ecbull:eb-09-00301

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Kathy Yuan, 2005. "Asymmetric Price Movements and Borrowing Constraints: A Rational Expectations Equilibrium Model of Crises, Contagion, and Confusion," Journal of Finance, American Finance Association, vol. 60(1), pages 379-411, February.
    2. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
    3. Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 1-42.
    4. Frankel, Jeffrey A & Froot, Kenneth A, 1990. "Chartists, Fundamentalists, and Trading in the Foreign Exchange Market," American Economic Review, American Economic Association, vol. 80(2), pages 181-185, May.
    5. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 936-972, December.
    Full references (including those not matched with items on IDEAS)

    More about this item


    exchange rates; price bubbles; risk;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-09-00301. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.