IDEAS home Printed from https://ideas.repec.org/p/upf/upfgen/1522.html
   My bibliography  Save this paper

Reverse speculative attacks: A comment

Author

Abstract

Introduction: Imagine the case of a Central Bank that wants to peg its currency to the Euro at some predetermined exchange rate. Imagine moreover that, at this exchange rate, there is an excess demand of domestic currency by foreigners. Conventional wisdom suggests that there is no problem whatsoever for the Central Bank to achieve its objective: all it needs to do is to expand the supply of domestic currency to accommodate whatever demand there is at the chosen exchange rate. In the process of doing so, the Central Bank will expand both its assets, i.e., foreign reserves, and its liabilities, i.e., domestic currency. Since the Central Bank can issue as much domestic currency as it desires, there is in principle no limit to the size of this policy intervention. In this interesting paper, Amador, Bianchi, Bocola and Perri (henceforth ABBP) propose a model that illustrates the limits to this conventional wisdom.

Suggested Citation

  • Alberto Martin, 2016. "Reverse speculative attacks: A comment," Economics Working Papers 1522, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1522
    as

    Download full text from publisher

    File URL: https://econ-papers.upf.edu/papers/1522.pdf
    File Function: Whole Paper
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Obstfeld, Maurice, 1986. "Rational and Self-fulfilling Balance-of-Payments Crises," American Economic Review, American Economic Association, vol. 76(1), pages 72-81, March.
    2. Ricardo Reis, 2013. "The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis," American Economic Review, American Economic Association, vol. 103(3), pages 135-140, May.
    3. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    4. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
    5. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
    6. Ricardo Reis, 2013. "The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis," American Economic Review, American Economic Association, vol. 103(3), pages 135-140, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin, Alberto, 2016. "Comments on “Reverse speculative attacks” by M. Amador, J. Bianchi, L. Bocola and F. Perri," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 138-140.
    2. Steininger, Lea & Hesse, Casimir, 2024. "Buying into new ideas: The ECB’s evolving justification of unlimited liquidity," Department of Economics Working Paper Series 357, WU Vienna University of Economics and Business.
    3. Luiz Carlos Bresser-Pereira & Lauro Gonzalez & Cláudio Lucinda, 2008. "Crises financeiras nos anos 1990 e poupança externa [Financial crises of the 1990s and current account deficits]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 18(3), pages 327-357, September.
    4. Pastine, Ivan, 2002. "Speculation and the decision to abandon a fixed exchange rate regime," Journal of International Economics, Elsevier, vol. 57(1), pages 197-229, June.
    5. Preslava Kovatchevska, 2000. "The Banking and Currency Crises in Bulgaria: 1996 - 1997," CASE Network Studies and Analyses 0204, CASE-Center for Social and Economic Research.
    6. Giancarlo Corsetti & Bartosz Maćkowiak, 2024. "Gambling to Preserve Price (and Fiscal) Stability," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(1), pages 32-57, March.
    7. Cruz-Rodríguez Alexis, 2013. "The Relationship between Fiscal Sustainability and Currency Crises in Some Selected Countries," Review of Economic Perspectives, Sciendo, vol. 13(4), pages 176-194, December.
    8. Helpman, Elhanan & Leiderman, Leonardo, 1991. "Exchange Rate Systems: New Perspectives," Foerder Institute for Economic Research Working Papers 275504, Tel-Aviv University > Foerder Institute for Economic Research.
    9. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2004. "Government guarantees and self-fulfilling speculative attacks," Journal of Economic Theory, Elsevier, vol. 119(1), pages 31-63, November.
    10. Emerson Fernandes Marcal & Pedro Valls Pereira & Diogenes Manoel Leiva Martin & Wilson Toshiro Nakamura, 2011. "Evaluation of contagion or interdependence in the financial crises of Asia and Latin America, considering the macroeconomic fundamentals," Applied Economics, Taylor & Francis Journals, vol. 43(19), pages 2365-2379.
    11. Sheriffdeen A. Tella & Olumuyiwa G. Yinusa & Ayinde Taofeek Olusola & Saban Celik, 2011. "Global Economic Crisis And Stock Markets Efficiency: Evidence From Selected Africa Countries," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 25(1), pages 139-169.
    12. Gian Maria Milesi Ferretti & Assaf Razin, 2000. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Chapters, in: Currency Crises, pages 285-323, National Bureau of Economic Research, Inc.
    13. Daniel, Betty C., 2000. "The timing of exchange rate collapse," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 765-784, December.
    14. Komulainen, Tuomas, 2001. "Currency crises in emerging markets : Capital flows and herding behaviour," BOFIT Discussion Papers 10/2001, Bank of Finland, Institute for Economies in Transition.
    15. Ahec Šonje, Amina & Babić, Ante, 2002. "Measuring and predicting currency disturbances in Croatia: the “signals” approach," MPRA Paper 83137, University Library of Munich, Germany, revised Apr 2002.
    16. Della Posta, Pompeo, 2016. "Currency and external debt crises: A unifying framework," Journal of Policy Modeling, Elsevier, vol. 38(4), pages 723-736.
    17. Allan Drazen, 2000. "Political Contagion in Currency Crises," NBER Chapters, in: Currency Crises, pages 47-67, National Bureau of Economic Research, Inc.
    18. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
    19. Meixing Dai, 2009. "Public debt and currency crisis: how central bank opacity can make things bad?," Economics Bulletin, AccessEcon, vol. 29(1), pages 190-198.
    20. Broner, Fernando A., 2008. "Discrete devaluations and multiple equilibria in a first generation model of currency crises," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 592-605, April.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:1522. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.econ.upf.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.