Speculative attacks, private signals and intertemporal trade-offs
By: by Nikola A. Tarashev.
Contributors: Bank for International Settlements. Monetary and Economic Dept.
Series: BIS working papers -- no. 254
Publisher: Bank for International Settlements
Published: 2008
Place of publication: Basel, Switzerland
Language: eng
Format: Electronic resource
Description: Confronted with a speculative attack on its currency peg, an authority weighs the short-term benefit of giving in and fine tuning the economy against the long-term benefit of credibility-enhancing resistance. In turn, speculators with heterogeneous beliefs face strategic uncertainty that peaks at the time of the attack, when the fate of the peg is unclear, and then declines, as the economy settles in a stable currency regime. In this environment, a less conservative authority - i.e. one that stabilises less the exchange rate once a peg is abandoned - may be more likely to withstand an attack on the peg. This result, which strengthens as speculators' risk aversion declines, casts doubt on the conventional wisdom that greater conservatism enhances welfare.
Notes: Title from PDF file (viewed on Oct. 10, 2008).

"June 2008."

"Monetary and Economic Department."

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.