An Interest Rate Defense of a Fixed Exchange Rate? /
Defending a government's exchange-rate commitment with active interest rate policy is not an option in the Krugman-Flood-Garber (KFG) model of speculative attacks. In that model, the interest rate is the passive reflection of currency-depreciation expectations. In this paper we show how to adap...
|a An Interest Rate Defense of a Fixed Exchange Rate? /
|c Olivier Jeanne, Robert Flood.
264
1
|a Washington, D.C. :
|b International Monetary Fund,
|c 2000.
300
|a 1 online resource (19 pages)
490
1
|a IMF Working Papers
500
|a <strong>Off-Campus Access:</strong> No User ID or Password Required
500
|a <strong>On-Campus Access:</strong> No User ID or Password Required
506
|a Electronic access restricted to authorized BRAC University faculty, staff and students
520
3
|a Defending a government's exchange-rate commitment with active interest rate policy is not an option in the Krugman-Flood-Garber (KFG) model of speculative attacks. In that model, the interest rate is the passive reflection of currency-depreciation expectations. In this paper we show how to adapt the KFG model to allow for an interest rate defense. It is shown that increasing the domestic-currency interest rate makes domestic assets more attractive according to an asset substitution effect, but weakens the domestic currency by increasing the government's fiscal liabilities. As a result, raising the interest rate hastens the speculative attack when speculation is motivated by underlying fiscal fragility.
538
|a Mode of access: Internet
700
1
|a Flood, Robert.
830
0
|a IMF Working Papers; Working Paper ;
|v No. 2000/159
856
4
0
|z Full text available on IMF
|u http://elibrary.imf.org/view/journals/001/2000/159/001.2000.issue-159-en.xml
|z IMF e-Library