A Common Framework for Thinking about Currency Crises

Le résumé fourni par la source

This chapter shows how a lot of the newly minted ideas on currency crises relate back to a common intellectual ancestor, Salant and Henderson (S&H), seen through the lens of the Krugman-Flood-Garber (KFG) model. The S&H paper gave economists a way to think about currency crises just as a wave of crises broke over foreign exchange markets. It argues that the rest of the currency-crisis literature is really a set of data-driven extensions of this basic model. Some examples illustrated include attack-conditional monetary policy, devaluation, and sterilization and interest rate defense. Showing how the basic KFG model can be adapted to incorporate the later contributions, the chapter also presents some observations about empirical work on the KFG model. The essential idea in S&H is that speculators betting against a government policy will influence the success, failure, or at least duration of that policy in a forecastable way. Controlled Vocabulary Terms attack-conditional monetary policy; currency crises; currency crisis management empirical models; devaluation; foreign exchange markets; Krugman-Flood-Garber model of crisis management; sterilization and interest rate

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