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Monetary policy during speculative attacks: Are there adverse medium term effects?

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  • Bergman, U. Michael
  • Jellingsø, Mads

Abstract

This paper extends the currency crises model of Aghion, Bacchetta and Banerjee (2000, 2001, 2004) in different directions. Our main result is that a tight monetary policy can have adverse effects beyond the short term and can potentially cause a currency crisis in the medium term, even in cases when the interest rate defense is successful and prevented a currency crisis in the short-run. In addition, we add a risk premium and find that this increases the likelihood of a crisis, can help explain contagion, and that prospective capital controls will increase the likelihood that such controls will be needed as an emergency measure.

Suggested Citation

  • Bergman, U. Michael & Jellingsø, Mads, 2010. "Monetary policy during speculative attacks: Are there adverse medium term effects?," The North American Journal of Economics and Finance, Elsevier, vol. 21(1), pages 5-18, March.
  • Handle: RePEc:eee:ecofin:v:21:y:2010:i:1:p:5-18
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    Cited by:

    1. repec:eee:ecofin:v:42:y:2017:i:c:p:132-143 is not listed on IDEAS
    2. Ryota Nakatani, 2016. "Twin Banking and Currency Crises and Monetary Policy," Open Economies Review, Springer, vol. 27(4), pages 747-767, September.
    3. repec:mes:emfitr:v:53:y:2017:i:11:p:2545-2561 is not listed on IDEAS
    4. Ryota Nakatani, 2014. "The Effects of Financial and Real Shocks, Structural Vulnerability and Monetary Policy on Exchange Rates from the Perspective of Currency Crises Models," UTokyo Price Project Working Paper Series 043, University of Tokyo, Graduate School of Economics.

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