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The Fragility of Emerging Currencies Since the 2000s - a Minskyan Analysis

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  • Raquel Almeida Ramos

    (Centre d'Economie de l'Université de Paris Nord (CEPN))

Abstract

The currencies of a few emerging market economies (EME) have being following a specific dynamic since the early 2000s: they are strongly connected to financial markets internationally, appreciating in moments of tranquility and presenting sharp depreciations in peaks of uncertainty. What is the mechanism behind this specific dynamic that contradicts mainstream exchange-rate theories? To answer this question, this article applies the Minskyan framework to the context of money managers and their portfolio allocation decisions. The approach allows the analysis of these currencies through money managers’ decisions, putting forward that these might float according to their balance-sheet constraints - reasons not related to the currencies themselves, but to money managers’ assets, liabilities, and currency mismatch. The result is a dynamic characterized by deviation-amplifying system, the opposite of the equilibrium-seeking mechanism needed for clearing markets, and high frequency of depreciations associated to the global extent of these institutions’ balance-sheet.

Suggested Citation

  • Raquel Almeida Ramos, 2017. "The Fragility of Emerging Currencies Since the 2000s - a Minskyan Analysis," CEPN Working Papers 2017-18, Centre d'Economie de l'Université de Paris Nord.
    • Handle: RePEc:upn:wpaper:2017-18
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    More about this item

    Keywords

    Exchange rates; emerging market economies; Minsky;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General

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