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Speculation and the decision to abandon a fixed exchange rate regime

  • Pastine, Ivan

This Paper demonstrates that the implications of first-generation speculative attack models do not hold if there is a rational, forward-looking policy maker. The policy maker will be able to avoid predictable speculative attacks by introducing uncertainty into the decisions of speculators. This changes the sudden attack into a prolonged period of increasing speculation and uncertainty. In addition, the model provides useful insights into the viability of temporary nominal anchor policies, and a theoretical foundation for a useful empirical methodology.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 57 (2002)
Issue (Month): 1 (June)
Pages: 197-229

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Handle: RePEc:eee:inecon:v:57:y:2002:i:1:p:197-229
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  8. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers.
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  17. Davies, Gareth & Vines, David, 1995. "Equilibrium Currency Crises: Are Multiple Equilibria Self-fulfilling or History Dependent?," CEPR Discussion Papers 1239, C.E.P.R. Discussion Papers.
  18. F Gulcin Ozkan & Alan Sutherland, . "A Model of the ERM Crisis," Discussion Papers 94/2, Department of Economics, University of York.
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