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Speculative Attacks (speculative + attack)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	66%

Selected Abstracts

Contagion Phenomena in Financial Crises: Evidence from the Portuguese and Spanish Exchange Rate Crises in the Early 1990s

INTERNATIONAL FINANCE, Issue 2 2003
Margarida AbreuArticle first published online: 3 SEP 200
Based on the experience of the Portuguese and Spanish financial crises in the early 1990s, this paper suggests that the spillover of exchange rate crises may reveal a particular dimension of the financial contagion effect: the presumption of mimetic behaviour by monetary authorities. This paper analyses the evolution of the credibility of the Escudo and the Peseta. We set out to test the existence of a contagion effect: that is, in what way does the polarization of exchange rate expectations in a scenario of devaluation of one currency explain the building up of a similar scenario for the other currency? We also examine the transmission mechanisms of such a scenario. Our results suggest the existence of a one-way contagion effect, of the Escudo by the Peseta. Speculative attacks against the Peseta necessarily give rise to speculative attacks against the Escudo, regardless of the evolution of the ,fundamentals' of the Escudo. In this case, the spillover of financial crises could be better understood by the anticipated mimetic behaviour of monetary authorities, rather than by the geographical proximity of the countries in question or by the identical performance of the economies of both. [source]

Speculative attacks with unpredictable or unknown foreign exchange reserves

CANADIAN JOURNAL OF ECONOMICS, Issue 4 2001
Gregor W. Smith
[source]

Policy decisiveness and responses to speculative attacks in developed countries

EUROPEAN JOURNAL OF POLITICAL RESEARCH, Issue 6 2009
KYUNG JOON HAN
Why are some countries able to defend their currencies when there are speculative attacks, while others fail to do so and devalue their currencies? This article suggests that intragovernment factors as well as government-legislature relations should be considered because many of the policy responses to speculative attacks do not require legislative acquiescence, so that intragovernment attributes will have more substantial effects on the policy responses than those of government-legislature relations. This article suggests that cleavages within government and its instability have a negative effect on decisiveness. Data regarding speculative attacks in developed countries from the 1970s to the 1990s and the Heckman selection model show that governments with many veto players and with less durability have had difficulty in defending their currencies in the face of speculative attacks. The article also finds that governmental institutional effects can be constrained by central bank independence. The effects become substantially smaller and statistically insignificant when central banks are very independent. The overall results imply that policy indecisiveness induced by some political factors makes governments less able to adopt a new policy equilibrium that is necessary to respond to an exogenous shock such as speculative attack. [source]

Currency crisis duration and interest defence

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2009
Tullio Gregori
Abstract Asymmetric wars of attrition between speculators and a Central Bank can provide a useful framework to address currency crisis length and explain why a speculative attack can fail after some time. Interest rate defence can be analysed too. A non-linear relationship between interest rates and peg defence emerges, as a rate upsurge can reduce both concession times. With some welfare loss functions, increasing the domestic rate too much is a self-defeating policy as the Central Bank will opt out before speculators concede, but the reverse holds for lower rates. Copyright © 2008 John Wiley & Sons, Ltd. [source]

Second Generation Models of Currency Crises

JOURNAL OF ECONOMIC SURVEYS, Issue 5 2001
Jesper Rangvid
Until the beginning of the 1990s, currency crises were typically analyzed within the framework of a generation of models that assumed that the foreign exchange reserves of a country that was running a fixed exchange rate policy were falling (because the government was running a deficit on its budget that was financed by printing money). When the foreign exchange reserves reached a lower bound, a speculative attack on the fixed exchange rate was launched. Today, this theory is no longer the benchmark when explaining the occurrence of a currency crisis. Actually, a new generation of models that seeks to take explicitly into account the costs and benefits associated with the maintenance of a fixed exchange rate has emerged. This paper surveys these ,second generation models of currency crises'. This generation of models emphasizes that it is an endogenous decision if a government chooses to abandon a policy of fixed exchange rates. The survey pays special attention to the fact that the second generation of currency crises models often generates multiple equilibria for the rate of devaluation given one state of the economic fundamentals. A currency crisis can thus occur even if no secular trend in economic fundamentals can be identified, as in recent currency crises. [source]

Currency boards: More than a quick fix?

ECONOMIC POLICY, Issue 31 2000
Atish R. Ghosh
Once a popular colonial monetary arrangement, currency boards fell into disuse as countries gained political independence. But recently, currency boards have made a remarkable come-back. This essay takes a critical look at their performance. Are currency boards really a panacea for achieving low inflation and high growth? Or do they merely provide a ,quick fix' allowing authorities to neglect fundamental reforms and thus fail to yield lasting benefits? We have three major findings. First, the historical track record of currency boards is sterling, with few instances of speculative attacks and virtually no ,involuntary' exits. Countries that did exit from currency boards did so mainly for political, rather than economic reasons, and such exits were usually uneventful. Second, modern currency boards have often been instituted to gain credibility following a period of high or hyperinflation, and in this regard, have been remarkably successful. Countries with currency boards experienced lower inflation and higher (if more volatile) GDP growth compared to both floating regimes and simple pegs. The inflation difference reflects both a lower growth rate of money supply (a ,discipline effect'), and a faster growth of money demand (a ,credibility effect'). The GDP growth effect is significant, but may simply reflect a rebound from depressed levels. Third, case studies reveal the successful introduction of a currency board to be far from trivial, requiring lengthy legal and institutional changes, as well as a broad economic and social consensus for the implied commitment. Moreover, there are thorny issues, as yet untested, regarding possible exits from a currency board. Thus currency boards do not provide easy solutions. But if introduced in the right circumstances, with some built-in flexibility, they can be an important tool for gaining credibility and achieving macroeconomic stabilization. [source]