Do exchange rate bubbles deflate faster than they inflate?

Michael Bleaney and Zhiyong Li

Economics Bulletin, 2009, vol. 29, issue 3, 1542-1548

Abstract: Some theories predict that exchange rate bubbles should deflate faster than they inflate. We find no empirical support for this hypothesis for currencies that floated against the US dollar. The bursting of exchange rate bubbles is not analogous to collapses in the prices of financial assets. Financial asset prices tend to fall faster than they rise, which suggests that the same might be true of relatively risky currencies. We find no evidence that other currencies depreciate faster against the US dollar than they appreciate, even though the US dollar is commonly regarded as a potential safe-haven currency. This is true even of emerging-market currencies.

Keywords: exchange rates; price bubbles; risk (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2009-07-01
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