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Do exchange rate bubbles deflate faster than they inflate?

Author

Listed:
  • Michael Bleaney

    (University of Nottingham)

  • Zhiyong Li

    (University of Nottingham)

Abstract

Some theories predict that exchange rate bubbles should deflate faster than they inflate. We find no empirical support for this hypothesis for currencies that floated against the US dollar. The bursting of exchange rate bubbles is not analogous to collapses in the prices of financial assets. Financial asset prices tend to fall faster than they rise, which suggests that the same might be true of relatively risky currencies. We find no evidence that other currencies depreciate faster against the US dollar than they appreciate, even though the US dollar is commonly regarded as a potential safe-haven currency. This is true even of emerging-market currencies.

Suggested Citation

  • Michael Bleaney & Zhiyong Li, 2009. "Do exchange rate bubbles deflate faster than they inflate?," Economics Bulletin, AccessEcon, vol. 29(3), pages 1542-1548.
    • Handle: RePEc:ebl:ecbull:eb-09-00301
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I3-P2.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    exchange rates; price bubbles; risk;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance

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