Speculation and the Decision to Abandon a Fixed Exchange Rate Regime
Journal of International Economics
197 - 229
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Pastine, I. (2002). Speculation and the decision to abandon a fixed exchange rate regime. Journal of International Economics, 57(1), 197-229.
Please cite this item using this persistent URLhttp://hdl.handle.net/11693/13472
This paper demonstrates that the implications of first-generation speculative attack models do not hold if there is a rational, forward-looking policy maker. The policy maker will be able to avoid predictable speculative attacks by introducing uncertainty into the decisions of speculators. This changes the sudden attack into a prolonged period of increasing speculation and uncertainty. In addition, the model provides useful insights into the viability of temporary nominal anchor policies, and a theoretical foundation for a useful empirical methodology. (C) 2002 Elsevier Science B.V. All rights reserved.