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The Fragility of Emerging Currencies Since the 2000s: a Minskyan Analysis

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  • Raquel A Ramos

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

Abstract

The currencies of a few emerging market economies (EME) have being following a specific dynamic since the early 2000s: they are strongly connected to financial markets internationally , appreciating in moments of tranquility and presenting sharp depreciations in peaks of uncertainty. What is the mechanism behind this specific dynamic that contradicts mainstream exchange-rate theories? To answer this question, this article applies the Minskyan framework to the context of money managers and their portfolio allocation decisions. The approach allows the analysis of these currencies through money managers' decisions, putting forward that these might float according to their balance-sheet constraints-reasons not related to the currencies themselves, but to money managers' assets, liabilities, and currency mismatch. The result is a dynamic characterized by deviation-amplifying system, the opposite of the equilibrium-seeking mechanism needed for clearing markets, and high frequency of depreciations associated to the global extent of these institutions' balance-sheet.

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  • Raquel A Ramos, 2017. "The Fragility of Emerging Currencies Since the 2000s: a Minskyan Analysis," Working Papers hal-01619118, HAL.
    • Handle: RePEc:hal:wpaper:hal-01619118
    Note: View the original document on HAL open archive server: https://hal.science/hal-01619118
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    Keywords

    Exchange rates; emerging market economies; Minsky;
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