Monetary policy during speculative attacks: Are there adverse medium term effects?

Research output: Contribution to journalJournal articleResearchpeer-review

This paper extends the currency crises model of Aghion, Bacchetta and Banerjee (2000, 2001, 2004) in different directions. Our main result is that a tight monetary policy can have adverse effects beyond the short term and can potentially cause a currency crisis in the medium term, even in cases when the interest rate defense is successful and prevented a currency crisis in the short-run. In addition, we add a risk premium and find that this increases the likelihood of a crisis, can help explain contagion, and that prospective capital controls will increase the likelihood that such controls will be needed as an emergency measure.
Original languageEnglish
JournalNorth American Journal of Economics and Finance
Issue number1
Pages (from-to)5-18
Number of pages14
Publication statusPublished - 2010

    Research areas

  • Faculty of Social Sciences - foreign-currency debt, balance sheets, interest parity, risk premium, contagion, prospective capital control, monetary policy

ID: 18475093