Speculation and the decision to abandon a fixed exchange rate regime

Author / Creator

Pastine, Ivan, author

Available as

Online

Summary

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 ...

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.

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