Self-Fulfilling Risk Predictions

Self-Fulfilling Risk Predictions
Author: Robert P. Flood
Publisher: International Monetary Fund
Total Pages: 40
Release: 1998-08
Genre: Business & Economics
ISBN:

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Currency crises in Europe and Mexico, as well as those unfolding in Asia, have renewed efforts to understand and control the forces underlying speculative attacks on fixed exchange rates. Until the European crises in 1992-93, there was general agreement about the underlying cause of speculative attacks. A country would ultimately face an attack if it ran macroeconomic policies inconsistent in the longer term with the fixed exchange rate. For example, if a government monetized a large fiscal deficit, excessive money growth would cause its international reserve holdings to decline and eventually trigger an attack by speculators. The government would be forced to abandon the fixed exchange rate and let the currency depreciate. The view that deteriorating fundamentals led to currency crises was formalized in a set of "first-generation" crisis models.1

Self-Fulfilling Risk Predictions

Self-Fulfilling Risk Predictions
Author: Mr.Robert P. Flood
Publisher: International Monetary Fund
Total Pages: 35
Release: 1998-08-01
Genre: Business & Economics
ISBN: 1451854692

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The paper shows that changing market beliefs about currency risk can generate a self-fulfilling speculative attack on a fixed exchange rate. The attack does not require a later change in policies to make it profitable. This is illustrated by introducing an endogenous risk premium into a “first-generation model” of a speculative attack. The model is further modified to take account of sterilization, debt-financed fiscal deficits, and anticipatory price-setting behavior. The model is used to interpret the 1994 Mexican peso crisis.

Speculative Bubbles, Speculative Attacks, and Policy Switching

Speculative Bubbles, Speculative Attacks, and Policy Switching
Author: Robert P. Flood
Publisher: MIT Press
Total Pages: 528
Release: 1994
Genre: Business & Economics
ISBN: 9780262061698

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The papers in this book are grouped into three sections: the first on price bubbles is primarily financial; the second on speculative attacks (on exchange rate regimes) is international in scope; and the third, on policy switching, is concerned with monetary policy.

Between Growth and Stability

Between Growth and Stability
Author: Leila Simona Talani
Publisher: Edward Elgar Publishing
Total Pages: 213
Release: 2008-01-01
Genre: Business & Economics
ISBN: 1848441509

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Very comprehensive and based on a detailed economic and political analysis, Between Growth and Stability is clearly a vital book for both students and seasoned economists. . . Thomas Bauwens, Bibliothèque Européenne Combining economic and political science perspectives, this timely and important book describes and analyses the circumstances and events leading to the demise and subsequent reform of the Stability and Growth Pact (SGP). Between Growth and Stability aims to find a solution to the dilemmas posed by fiscal policy coordination in the context of a single currency area, as well as contrasting the alternative heuristic frameworks and theoretical perspectives employed. It focuses particularly on the question of credibility, its definition and its meaning in the day-to-day workings of economic and monetary union. The book examines the actual performance of the SGP and proposes ways in which the integrity of European fiscal rule making might be improved in the future. This book will be essential reading for policymakers, politicians, members of European institutions and international organizations. The in-depth analysis will also be invaluable to scholars of international relations and economics, as well as undergraduate and postgraduate students in international relations, political science and economics.

Managing Economic Volatility and Crises

Managing Economic Volatility and Crises
Author: Joshua Aizenman
Publisher: Cambridge University Press
Total Pages: 615
Release: 2005-10-03
Genre: Business & Economics
ISBN: 1139446940

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Economic volatility has come into its own after being treated for decades as a secondary phenomenon in the business cycle literature. This evolution has been driven by the recognition that non-linearities, long buried by the economist's penchant for linearity, magnify the negative effects of volatility on long-run growth and inequality, especially in poor countries. This collection organizes empirical and policy results for economists and development policy practitioners into four parts: basic features, including the impact of volatility on growth and poverty; commodity price volatility; the financial sector's dual role as an absorber and amplifier of shocks; and the management and prevention of macroeconomic crises. The latter section includes a cross-country study, case studies on Argentina and Russia, and lessons from the debt default episodes of the 1980s and 1990s.

Contagion

Contagion
Author: Mr.Paul R. Masson
Publisher: International Monetary Fund
Total Pages: 33
Release: 1998-09-01
Genre: Business & Economics
ISBN: 1451856229

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Several concepts of contagion are distinguished. It is argued that only models that admit of multiple equilibria are capable of producing true contagion. A simple balance of payments model is presented to illustrate that phenomenon, and some back-of-the-envelope calculations assess its relevance to the coincidence of emerging market crises in 1994–95 and in 1997.

The Historical Performance of the Federal Reserve

The Historical Performance of the Federal Reserve
Author: Michael D. Bordo
Publisher: Hoover Press
Total Pages: 718
Release: 2019-06-01
Genre: Business & Economics
ISBN: 0817922164

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Distinguished economist Michael D. Bordo argues for the importance of monetary stability and monetary rules, offering theoretical, empirical, and historical perspectives to support his case. He shows how the pursuit of stable monetary policy guided by central banks following rule-like behavior produces low and stable inflation, stable real performance, and encourages financial stability. In contrast, he explains how the failure to adhere to rules that produce monetary stability will inevitably produce the dire consequences of real, nominal, and financial instability. Bordo also examines the performance of the Federal Reserve and he reviews the history of monetary policy during the Great Depression.

The Political Economy of Monetary Solidarity

The Political Economy of Monetary Solidarity
Author: Waltraud Schelkle
Publisher: Oxford University Press
Total Pages: 387
Release: 2017-04-04
Genre: Political Science
ISBN: 0191027774

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Creating the European monetary union between diverse and unequal nation states is arguably one of the biggest social experiments in history. This book offers an explanation of how the euro experiment came about and was sustained despite a severe crisis, and provides a comparison with the monetary-financial history of the US. The euro experiment can be understood as risk-sharing through a currency that is issued by a supranational central bank. A single currency shares liquidity risks by creating larger markets for all financial assets. A single monetary policy responds to business cycles in the currency area as a whole rather than managing the path of one dominant economy. Mechanisms of risk-sharing become institutions of monetary solidarity if they are consciously maintained, but they will periodically face opposition in member states. This book argues that diversity of membership is not an economic obstacle to the success of the euro, as diversity increases the potential gains from risk sharing. But political cooperation is needed to realize this potential, and such cooperation is up against collective action problems which become more intractable as the parties become more diverse. Hence, risk-sharing usually comes about as a collective by-product of national incentives. This political-economic tension can explain why the gains from risk-sharing are not more fully exploited, both in the euro area and in the US dollar area. This approach to monetary integration is based on the theory of collective action when hierarchy is not available as a solution to inter-state cooperation. The theory originates with Keohane and Ostrom (1995) and it is applied in this book, taking into account the latest research on the inherent instability of financial market integration.

Exchange Rate Crises in Developing Countries

Exchange Rate Crises in Developing Countries
Author: Michael G. Hall
Publisher: Routledge
Total Pages: 318
Release: 2018-01-18
Genre: Political Science
ISBN: 1351158422

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According to many economists, the increasing mobility of capital across borders has made it more costly to peg exchange rates. This phenomenon has contributed to some of the more famous examples of exchange rate crises in recent times, such as the Mexican peso crisis in 1994 and the Asian financial crisis in 1997. Yet despite the increasing costs of pegging in today's accelerated financial markets, some developing countries try to maintain a peg for as long as they can. This work is the first to theorize the role of bankers as a domestic interest group involved in exchange rate policy. It adds to our understanding of how interest groups affect economic policy in developing countries and explains why some of the largest and fastest growing economies in the developing world were the most prone to crisis. The volume also refines our understanding of the 'hollowing-out thesis', the argument that increasing capital mobility is forcing states to abandon pegging.