Collapsing exchange rate regimes: shocks and biases
Patterns in domestic credit creation stemming from inconsistent fiscal policies have received widespread attention for aggravating speculative attacks on central bank foreign exchange reserves and contributing to the collapse of exchange rate regimes. This paper acknowledges the importance of monetary and fiscal discipline, but also emphasizes the importance of other random shocks to the domestic money market, most notably shocks from external credit supplies and relative prices. Policies of the domestic fiscal authorities are only partial catalysts for speculative attacks on a currency. Expansion of domestic credit stemming from the monetization of fiscal imbalances may be dominated by involuntary domestic credit expansions necessitated by surprise shortages in supplies of external capital. Further, the unexpected availability of external capital translates into a lower net critical reserve floor, making the depletion of central bank reserves by a speculative attack more difficult to accomplish. Also of considerable importance are relative price shocks which directly influence the probability of collapse by randomizing the demand for nominal money balances. Empirical studies of exchange rate crises that neglect these considerations will produce biased estimates of both expected collapse probabilities and anticipated post-collapse exchange rates.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
- Flood, Robert P. & Hodrick, Robert J., 1986.
"Real aspects of exchange rate regime choice with collapsing fixed rates,"
Journal of International Economics,
Elsevier, vol. 21(3-4), pages 215-232, November.
- Robert P. Flood & Robert J. Hodrick, 1985. "Real Aspects of Exchange Rate Regime Choice with Collapsing Fixed Rates," NBER Working Papers 1603, 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.
- Guillermo A. Calvo, 1983. "Trying to Stabilize: Some Theoretical Reflections Based on the Case of Argentina," NBER Chapters, in: Financial Policies and the World Capital Market: The Problem of Latin American Countries, pages 199-220 National Bureau of Economic Research, Inc.
- Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-48, 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.
When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:10:y:1991:i:2:p:252-263. 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: (Zhang, Lei)
If references are entirely missing, you can add them using this form.