The currency crisis model outlined in this paper assumes state-contingent reserve dynamics which depend on the deviations of the exchange rate from a misaligned central parity. The size of the misalignment is affected by an underlying fundamental which embodies money aggregates and a stochastic shock. The main result, in the presence of an irreversible switch of regime, is that the size of the attack is amplified by the feedback effect from the composite fundamental to the exchange rate.
Corrado, L., Holly, S. (2000). A Currency crisis model with misaligned central parity: a stochastic analysis. ECONOMICS LETTERS, 67(1), 61-68 [10.1016/S0165-1765(99)00203-7].
A Currency crisis model with misaligned central parity: a stochastic analysis
CORRADO, LUISA;
2000-04-01
Abstract
The currency crisis model outlined in this paper assumes state-contingent reserve dynamics which depend on the deviations of the exchange rate from a misaligned central parity. The size of the misalignment is affected by an underlying fundamental which embodies money aggregates and a stochastic shock. The main result, in the presence of an irreversible switch of regime, is that the size of the attack is amplified by the feedback effect from the composite fundamental to the exchange rate.| File | Dimensione | Formato | |
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