Currency Crashes and Bond Yields in Industrial Countries

Joseph Gagnon

No 837, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines episodes of sudden large exchange rate depreciations (currency crashes) in industrial countries and characterizes the behavior of government bond yields during and after these crashes. The most important determinant of changes in bond yields appears to be inflationary expectations. When inflation is high and rising at the time of a currency crash, bond yields tend to rise. Otherwise--and in every currency crash since 1985--bond yields tend to fall. Over the past 20 years, inflation rates have been remarkably stable in industrial countries after currency crashes.

Keywords: Exchange rate; Depreciation; Interest rate; Inflation (search for similar items in EconPapers)
JEL-codes: E43 F31 F41 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2005
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://www.federalreserve.gov/pubs/ifdp/2005/837/ifdp837r.pdf Revision (application/pdf)
https://www.federalreserve.gov/pubs/ifdp/2005/837/ifdp837.pdf Original (application/pdf)

Related works:
Journal Article: Currency crashes and bond yields in industrial countries (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:837

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