Collapsing Exchange Rate Regimes: Another Linear Example

Flood, Robert P.; Garber, Peter M.; Kramer, Charles

doi:10.3386/w5318

Cited by 37 publications

(48 citation statements)

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“…The first-generation models (Krugman 1979;Flood and Garber 1984) start from the assumption of a small economy that fixes its exchange rate while its domestic price level moves in accordance with the foreign price level. The domestic money supply is backed by domestic credit and international reserves.…”

Section: Theoretical Modelsmentioning

confidence: 99%

Leading Indicators of Currency Crises: Are They the Same in Different Exchange Rate Regimes?

et al. 2014

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We investigate whether leading indicators of currency crises differ across exchange rate regimes using data for 88 countries in the period 1981-2010. Our estimates suggest that in fixed exchange rate regimes external indicators, such as deviations of the real exchange rate from trend and the growth of international reserves, have the strongest predictive power. In contrast, in floating exchange rate regimes monetary policy and credibility indicators, such as domestic credit growth and inflation, are the best leading indicators of currency crises. Both credibility and external economic indicators have predictive power in intermediate exchange rate regimes. Open Econ Rev (2014) 25:937-957

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Section: Theoretical Modelsmentioning

confidence: 99%

Leading Indicators of Currency Crises: Are They the Same in Different Exchange Rate Regimes?

et al. 2014

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“…Dornbusch and Werner [19] emphasize the role of an "overvalued" RER and appeal to diverging speeds of adjustment in capital versus goods markets to justify a nominal devaluation with the purpose of avoiding a crisis. Flood, Garber and Kramer, [21] explain the crisis as a speculative attack resulting from the inconsistency of fixing the exchange rate while maintaining fiscal imbalance. Calvo and Mendoza [11], Cole and Kehoe [15], and Sachs, Tornell and Velasco [31], stress self-fulfilling prophecies and herd behavior.…”

Section: Proposition 5 There Exists a Critical Value Of The World Intmentioning

confidence: 99%

“…Several papers have analyzed the Mexican crisis of 1994, focusing on other factors that contributed to the crisis. For example, Dornbusch and Werner[19], Flood, Garber and Kramer[21], Calvo and Mendoza[11], Cole and Kehoe[15], and Sachs, Tornell and Velasco[31]. See Section 4.4 for additional discussion.…”

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Domestic financial market frictions, unrestricted international capital flows, and crises in small open economies

Antinolfi¹,

Huybens²

2004

Economic Theory

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We present an example of a small open economy where small increases in the world interest rate may induce a sharp decline in output and a precipitous depreciation of the exchange rate. Due to a costly state verification problem in domestic credit markets, combined with unrestricted international capital flows, our economy generates two long-run equilibria, one with low GDP and a relatively depreciated real exchange rate (RER), and one with high GDP and a relatively appreciated RER. The first is always a saddle, while the second may be a sink or a source, depending on the level of the world interest rate. A “crisis” is identified with the economy switching from an equilibrium path approaching the high-output steady state to the saddlepath approaching the low-output steady state. In Mexico’s recent history, periods of growth associated with appreciation of the RER have alternated with periods of sharp contraction and depreciation of the RER. Our economy displays such behavior in response to changes in the world interest rate. Copyright Springer-Verlag Berlin/Heidelberg 2004Financial market frictions, International financial crises, Real exchange rate, Nominal exchange rate, Capital accumulation.,

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“…Agents become gradually informed that such a shock has taken place but they are imperfectly informed about both the timing of the shock and the information of other agents. The peg is 1 Other "first generation models" include Flood and Garber (1984), and Flood, Garber and Kramer (1996). The latter paper studies the effects of sterilization, by the addition of a bond market.…”

Section: Introductionmentioning

confidence: 99%

Devaluation without common knowledge

Rochon

2006

Journal of International Economics

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Collapsing Exchange Rate Regimes: Another Linear Example

Cited by 37 publications

References 0 publications

Leading Indicators of Currency Crises: Are They the Same in Different Exchange Rate Regimes?

Leading Indicators of Currency Crises: Are They the Same in Different Exchange Rate Regimes?

Domestic financial market frictions, unrestricted international capital flows, and crises in small open economies

Devaluation without common knowledge

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