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

Raquel Ramos

No 2017-18, CEPN Working Papers from Centre d'Economie de l'Université de Paris Nord

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.

Keywords: Exchange rates; emerging market economies; Minsky (search for similar items in EconPapers)
JEL-codes: B50 F31 F41 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-cta, nep-mon and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:upn:wpaper:2017-18

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