A model of currency crises with heterogeneous market beliefs
Pompeo Della Posta
The North American Journal of Economics and Finance, 2018, vol. 45, issue C, 182-195
This paper shows that the approach followed by Tamborini (2015) in analyzing and interpreting the euro area public debt crisis, based on the role played by agents characterized by heterogeneous market beliefs, can be applied also to the case of currency crises. By doing so, rather than considering the private sector as an atomistic player endowed with perfect information, and by considering a central bank that optimizes the amount of unsterilized inflow of foreign reserves in a Mundell-Fleming type speculative attack model, allows to explain the interest rates convex non-linearity that characterized, for example, a country like Italy during the 1992–93 EMS crisis.
Keywords: Currency crises; Speculative attacks; Fixed exchange rates; Heterogeneous market beliefs (search for similar items in EconPapers)
JEL-codes: E58 F31 F41 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:45:y:2018:i:c:p:182-195
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