Peg Abandonment and Cross-Currency Contagion

Florian Balke (), Andreas Barth, Arne Reichel () and Mark Wahrenburg ()
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Florian Balke: Goethe University Frankfurt, 60323 Frankfurt/Main, Germany
Arne Reichel: Goethe University Frankfurt, 60323 Frankfurt/Main, Germany
Mark Wahrenburg: Goethe University Frankfurt, 60323 Frankfurt/Main, Germany;

Management Science, 2024, vol. 70, issue 8, 5599-5606

Abstract: Using a novel data set comprising bid–ask quotes for foreign exchange swaps from individual dealers, we examine the consequences of the Swiss National Bank’s sudden termination of the Swiss franc/euro minimum exchange rate in 2015 on other pegged currencies. Our findings indicate a spillover effect as dealer banks began to reassess the risk associated with unexpected peg terminations, subsequently leading to wider bid–ask spreads for pegged currencies. This highlights that, even in strong economies, the credibility of a currency peg is influenced not only by the actions of the respective central bank but also by the stability of other pegged currencies.

Keywords: fixed exchange rate regime; FX swaps; reverse speculative attacks (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:8:p:5599-5606

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