Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments
This paper analyzes inevitable transitions between fixed and floating exchange-rate regimes in a balance-of-payments model where individual preferences are explicitly specified. The goal is to assessthe analogy between speculative attacks in foreign exchange markets and attacks on official price-fixing schemes in natural resource markets. In discrete time the analogy with resource markets is only partially correct, for in a deterministic model the collapse of a fixed rate may be characterized by two, successive attacks. The two-attack equilibriumis peculiar to discrete-time analysis, however. In the continuous-time limit of discrete-time models there is a single attack timed so as to rule out an anticipated discrete jump in the exchange rate.Balance-of-payments models differ from nonrenewable resource models in that foreign exchange reserves may be borrowed from abroad.The paper therefore asks whether there are limits to central-bank borrowing possibilities. In an idealized world where all private incomeis subject to lump-sum taxation, central-bank reserves can become infinitely negative with no violation of the public sector's intertemporal budget constraint. Nonetheless, a growth rate of domestic credit exceeding the world interest rate, if maintained indefinitely, leads to violation of the constraint in the paper's model.
|Date of creation:||Aug 1984|
|Date of revision:|
|Publication status:||published as "Speculative Attack and the External Constraint in a Maximizing Model ofthe Balance of Payments." From Canadian Journal of Economics, Vol. 19, No. 1, pp. 1-22, (February 1986).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
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.:
- Calvo, Guillermo A, 1977. "The Stability of Models of Money and Perfect Foresight: A Comment," Econometrica, Econometric Society, vol. 45(7), pages 1737-39, October.
- 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.
- Obstfeld, Maurice, 1981.
"Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation,"
Journal of Political Economy,
University of Chicago Press, vol. 89(6), pages 1142-61, December.
- Maurice Obstfeld, 1980. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation," NBER Working Papers 0599, National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- 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.
- Liviatan, Nissan, 1984. "Tight money and inflation," Journal of Monetary Economics, Elsevier, vol. 13(1), pages 5-15, January.
- Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
- Salant, Stephen W, 1983. "The Vulnerability of Price Stabilization Schemes to Speculative Attack," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 1-38, February.
- 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.
- Wyplosz, Charles, 1986. "Capital controls and balance of payments crises," Journal of International Money and Finance, Elsevier, vol. 5(2), pages 167-179, June.
- Bennett T. McCallum, 1982.
"Are Bond-Financed Deficits Inflationary? A Ricardian Analysis,"
NBER Working Papers
0905, National Bureau of Economic Research, Inc.
- McCallum, Bennett T, 1984. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 123-35, February.
- Connolly, Michael B & Taylor, Dean, 1984. "The Exact Timing of the Collapse of an Exchange Rate Regime and Its Impact on the Relative Price of Traded Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 194-207, May.
- Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-77, October.
- Stephen W. Salant & Dale W. Henderson, 1976. "Market anticipations, government policy, and the price of gold," International Finance Discussion Papers 81, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1437. 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: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.