“…Assuming that the cumulated exchange rate misalignments in an unsustainable fixed exchange rate regime are the same in a horizon of a week as in a horizon of a year would be difficult to believe, however, if we move within prediction horizons below a month (as we do in the empirical application), the hypothesis is not too far‐fetched. Crespo Cuaresma et al (2008) estimate misalignments for Bulgaria and Croatia and find increasing misalignments over long periods of time (5 years for Bulgaria and 9 years for Croatia) but a relatively small variation within shorter periods of time. This provides evidence that the assumption we make is not unrealistic.…”
Section: Uncovered Interest Rate Parity and Currency Crisesmentioning
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AbstractWe propose exploiting the term structure of relative interest rates to obtain estimates of changes in the timing of a currency crisis as perceived by market participants. Our indicator can be used to evaluate the relative probability of a crisis occurring in one week as compared to a crisis happening after one week but in less than a month. We give empirical evidence that the indicator performs well for two important currency crises in Eastern Europe: the crisis in the Czech Republic in 1997 and the Russian crisis in 1998.
“…Assuming that the cumulated exchange rate misalignments in an unsustainable fixed exchange rate regime are the same in a horizon of a week as in a horizon of a year would be difficult to believe, however, if we move within prediction horizons below a month (as we do in the empirical application), the hypothesis is not too far‐fetched. Crespo Cuaresma et al (2008) estimate misalignments for Bulgaria and Croatia and find increasing misalignments over long periods of time (5 years for Bulgaria and 9 years for Croatia) but a relatively small variation within shorter periods of time. This provides evidence that the assumption we make is not unrealistic.…”
Section: Uncovered Interest Rate Parity and Currency Crisesmentioning
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.
Terms of use:
Documents in
AbstractWe propose exploiting the term structure of relative interest rates to obtain estimates of changes in the timing of a currency crisis as perceived by market participants. Our indicator can be used to evaluate the relative probability of a crisis occurring in one week as compared to a crisis happening after one week but in less than a month. We give empirical evidence that the indicator performs well for two important currency crises in Eastern Europe: the crisis in the Czech Republic in 1997 and the Russian crisis in 1998.
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