A Stochastic Model of Self-Fulfilling Crises in Fixed Exchange Rate Systems
A fixed exchange rate regime can experience a self-fulfilling crisis if a high risk premium leads to high domestic interest rates that depress domestic activity, and thus make it more likely that the government will actually abandon the system. Depending on the parameter configuration, two equilibria might exist. One is characterized by low interest rates and a low (possibly zero) probability that the exchange rate commitment will be abandoned; the other is characterized by high interest rates and a high probability that the exchange rate commitment will be abandoned. An unstable intermediate equilibrium might also exist. An increase in the uncertainty of the shocks hitting the economy reduces the parameter range in which multiple equilibria can arise. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.
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.
Volume (Year): 4 (1999)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/1076-9307/|
|Order Information:||Web: http://jws-edcv.wiley.com/jcatalog/JournalsCatalogOrder/JournalOrder?PRINT_ISSN=1076-9307|
When requesting a correction, please mention this item's handle: RePEc:ijf:ijfiec:v:4:y:1999:i:2:p:129-46. 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: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.