Speculation and the decision to abandon a fixed exchange rate regime
Date
2002
Authors
Pastine, I.
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Source Title
Journal of International Economics
Print ISSN
0022-1996
Electronic ISSN
1873-0353
Publisher
Elsevier BV
Volume
57
Issue
1
Pages
197 - 229
Language
English
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Journal Title
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Abstract
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. © 2002 Elsevier Science B.V. All rights reserved.