NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Collapsing Exchange Rate Regimes: Shocks and Biases

Linda S. Goldberg

NBER Working Paper No. 2702
Issued in September 1988
NBER Program(s):   ITI   IFM

Patterns in domestic credit creation stemming from inconsistent fiscal policies have received widespread attention for aggravating speculative attacks on central bank foreign exchange reserves and contributing to the collapse of exchange rate regimes. This paper acknowledges the importance of monetary and fiscal discipline, but also emphasizes the importance of other random shocks to the domestic money market, most notably shocks from external credit supplies and relative prices. Policies of the domestic fiscal authorities are only partial catalysts for speculative attacks on a currency. Expansion of domestic credit stemming from the monetization of fiscal imbalances may be dominated by involuntary domestic credit expansions necessitated by surprise shortages in supplies of external capital. Further, the unexpected availability of external capital translates into a lower net critical reserve floor, making the depletion of central bank reserves by a speculative attack more difficult to accomplish. Also of considerable importance are relative price shocks which directly influence the probability of collapse by randomizing the demand for nominal money balances. Empirical studies of exchange rate crises that neglect these considerations will produce biased estimates of both expected collapse probabilities and anticipated post-collapse exchange rates.

download in pdf format
   (172 K)

download in djvu format
   (110 K)

email paper

This paper is available as PDF (172 K) or DjVu (110 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2702

Published: Journal of International Money and Finance, Volume 10, June 1991, pp. 252-2 63. citation courtesy of

Users who downloaded this paper also downloaded these:
Goldberg w3320 Predicting Exchange Rate Crises: Mexico Revisited
Cumby and van Wijnbergen w2376 Finanial Policy and Speculative Runs with a Crawling Peg: Argentina 1979-1981
Obstfeld and Rogoff w5191 The Mirage of Fixed Exchange Rates
Eichengreen w10497 Global Imbalances and the Lessons of Bretton Woods
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us