Currency Crises (original) (raw)

2015

Abstract

This chapter describes currency crises, or balance of payment crises, by presenting the theoretical frameworks used to capture the main characteristics of such crises. It divides crises into three generations of models. The first generation emphasizes the speculative attack as an arbitrage of asset prices. The second centers around the choice of governments to defend or not to defend exchange rate parity, where the cost to defend depended on the expectations of exchange rate depreciation, and the third is based on the financial fragility of firms and bank balance sheets.

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