Financial policy and speculative runs with a crawling peg: Argentina 1979-1981
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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References listed on IDEAS
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- Stulz, Rene M., 1987. "Time-varying risk premia, imperfect information and the forward: Exchange rate," International Journal of Forecasting, Elsevier, vol. 3(1), pages 171-177.
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CEPR Discussion Papers
95, C.E.P.R. Discussion Papers.
- Buiter, Willem H., 1987. "Borrowing to defend the exchange rate and the timing and magnitude of speculative attacks," Journal of International Economics, Elsevier, vol. 23(3-4), pages 221-239, November.
- 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.
- Obstfeld, Maurice, 1986.
"Rational and Self-fulfilling Balance-of-Payments Crises,"
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- Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
- Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
- Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-66, February.
- Lizondo, Jose Saul, 1983. "Foreign exchange futures prices under fixed exchange rates," Journal of International Economics, Elsevier, vol. 14(1-2), pages 69-84, February.
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