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Reverse Speculative Attacks

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Listed:
  • Manuel Amador
  • Javier Bianchi
  • Luigi Bocola
  • Fabrizio Perri

Abstract

In January 2015, in the face of sustained capital inflows, the Swiss National Bank abandoned the floor for the Swiss Franc against the Euro, a decision which led to the appreciation of the Swiss Franc. The objective of this paper is to present a simple framework that helps to better understand the timing of this episode, which we label a "reverse speculative attack". We model a central bank which wishes to maintain a peg, and responds to increases in demand for domestic currency by expanding its balance sheet. In contrast to the classic speculative attacks, which are triggered by the depletion of foreign assets, reverse attacks are triggered by the concern of future balance sheet losses. Our key result is that the interaction between the desire to maintain the peg and the concern about future losses can lead the central bank to first accumulate a large amount of reserves, and then to abandon the peg, just as we have observed in the Swiss case.

Suggested Citation

  • Manuel Amador & Javier Bianchi & Luigi Bocola & Fabrizio Perri, 2016. "Reverse Speculative Attacks," NBER Working Papers 22298, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22298
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    References listed on IDEAS

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    Cited by:

    1. Michele Cavallo & Marco Del Negro & W. Scott Frame & Jamie Grasing & Benjamin A. Malin & Carlo Rosa, 2019. "Fiscal Implications of the Federal Reserve's Balance Sheet Normalization," International Journal of Central Banking, International Journal of Central Banking, vol. 15(5), pages 255-306, December.
    2. Berhold, Kerstin & Stadtmann, Georg, 2017. "Who put the holes in the Swiss cheese? Currency crisis under appreciation pressure," Discussion Papers 391, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    3. Lorena Keller, 2018. "Prudential Capital Controls and Risk Misallocation: Bank Lending Channel," 2018 Meeting Papers 129, Society for Economic Dynamics.
    4. Yu‐Fu Chen & Michael Funke & Richhild Moessner, 2018. "Informal one‐sided target zone model and the Swiss franc," Review of International Economics, Wiley Blackwell, vol. 26(5), pages 1130-1153, November.
    5. Binding, Garret & Dibiasi, Andreas, 2017. "Exchange rate uncertainty and firm investment plans evidence from Swiss survey data," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 1-27.
    6. Manuel Amador & Javier Bianchi & Luigi Bocola & Fabrizio Perri, 2020. "Exchange Rate Policies at the Zero Lower Bound," Review of Economic Studies, Oxford University Press, vol. 87(4), pages 1605-1645.
    7. Gourinchas, Pierre-Olivier & Rey, Hélène, 2016. "Real Interest Rates, Imbalances and the Curse of Regional Safe Asset Providers at the Zero Lower Bound," CEPR Discussion Papers 11503, C.E.P.R. Discussion Papers.
    8. Hertrich, Markus, 2020. "Foreign exchange interventions under a one-sided target zone regime and the Swiss franc," Discussion Papers 21/2020, Deutsche Bundesbank.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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