English, Article, Journal or magazine article edition: On the Timing of Balance of Payments Crises: Disaggregated Information and Interest Rate Policy Fernando Broner

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Bookmark: http://trove.nla.gov.au/version/111894
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • On the Timing of Balance of Payments Crises: Disaggregated Information and Interest Rate Policy
Author
  • Fernando Broner
Physical Description
  • preprint
Notes
  • This paper proposes a dynamic framework to study the timing of balance of payments crises. The model incorporates two main ingredients: (i) investors have private information; (ii)investors interact in a dynamic setting, weighing the high returns on domestic assets against the incentives to pull out before the devaluation. The model shows that the presence of disaggregated information delays the onset of BOP crises, giving rise to discrete devaluations. It also shows that high interest rates can be eective in delaying and possibly avoiding the abandonment of the peg. The optimal policy is to raise interest rates sharply as fundamentals become very weak. However, this policy is time inconsistent, suggesting a role for commitment devices such as currency boards or IMF pressure.
  • Currency crises; timing; disaggregated information; interest rate defenses.
  • RePEc:upf:upfgen:840
Language
  • English
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