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Currency crisis duration and interest defence
Author(s) -
Gregori Tullio
Publication year - 2009
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.372
Subject(s) - economics , speculation , monetary economics , currency , interest rate , currency crisis , attrition , exchange rate , keynesian economics , macroeconomics , medicine , dentistry
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.