Monetary policy during speculative attacks: Are there adverse medium term effects?
Research output: Contribution to journal › Journal article › Research › peer-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.
|Journal||North American Journal of Economics and Finance|
|Number of pages||14|
|Publication status||Published - 2010|
- Faculty of Social Sciences - foreign-currency debt, balance sheets, interest parity, risk premium, contagion, prospective capital control, monetary policy