Speculative Attacks, Forward Market Intervention and the Classic Bear Squeeze

Subir Lall

No 1997/164, IMF Working Papers from International Monetary Fund

Abstract: A typical strategy used by speculators to launch an attack on a fixed exchange regime is the use of forward markets. Central banks also intervene in forward markets to counter speculation. This paper addresses the question of how an attack is launched on the forward market, and what the optimal policy response to such speculation is in the forward and spot markets. The paper also demonstrates how central banks can impose a bear squeeze on speculators. Recent events in South East Asian currency markets are interpreted within the framework of the model’s predictions.

Keywords: WP; spot market; central bank intervention; interest rate; forward market; Speculative Attacks; Forward Markets; Exchange Rates; Market Corners; forward rate; long position; forward market intervention; Thai baht; capital loss; exchange rate crisis; interest rate target; market condition; fixed cost; market forward rate; money stock; market corner; Currencies; Currency markets; Commercial banks; Exchange rate arrangements; East Asia; South Asia (search for similar items in EconPapers)
Pages: 37
Date: 1997-12-01
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=2433 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1997/164

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().