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Currency Crises and the Term Structure of Interest Rates

  • Alan Sutherland

    ()

The currency crisis literature has identified two possible types of crisis: fundamentals based crises and self-fulfilling crises. A fundamentals based crisis arises when some state variable, such as foreign exchange reserves, reaches a critical level and triggers the abandonment of the fixed rate. A self-fulfilling crisis is triggered by an autonomous change in the beliefs of speculators. This paper demonstrates how these two types of crises generate different behaviour in the term structure in the period before the crisis. Copyright Springer Science + Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s11079-006-5214-1
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 17 (2006)
Issue (Month): 1 (January)
Pages: 57-71

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Handle: RePEc:kap:openec:v:17:y:2006:i:1:p:57-71
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  1. Svensson, L.E.O., 1990. "The Term Structure of Interest Rate Differentials in a Target Zone: Theory and Swedish Data," Papers 466, Stockholm - International Economic Studies.
  2. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
  3. Shiller, Robert & Campbell, John, 1991. "Yield Spreads and Interest Rate Movements: A Bird's Eye View," Scholarly Articles 3221490, Harvard University Department of Economics.
  4. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "Paper tigers?: A model of the Asian crisis," European Economic Review, Elsevier, vol. 43(7), pages 1211-1236, June.
  5. Ozkan, F. Gulcin & Sutherland, Alan, 1998. "A currency crisis model with an optimising policymaker," Journal of International Economics, Elsevier, vol. 44(2), pages 339-364, April.
  6. Robert Flood & Nancy Marion, 1998. "Perspectives on the Recent Currency Crisis Literature," NBER Working Papers 6380, National Bureau of Economic Research, Inc.
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