Multiple Equilibria and the Credibility of the Brazilian 'Crawling-Peg', 1995-1998

Hans Dewachter and Marco Lyrio ()

International Economics Working Papers Series from Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics

Abstract: This paper studies the relationship between the probability of devaluation of the Brazilian real and the fundamentals of the economy for the period 1995-1998. We use a model of a fixed exchange rate system that allows for multiple equilibria and, therefore, makes possible the identification of self-fulfilling speculation. The devaluation probability is computed using the "drift adjustment method". The model performs satisfactorily in tracking monthly devaluation expectations and presents some important advantages over a simple linear regression of macroeconomic variables on the devaluation probability. We do not find evidence that self-fulfilling speculation was at work in the period preceding the Brazilian currency crisis of January 1999. This suggests that the breakdown of the Brazilian managed exchange rate system was due to the deterioration of the fundamentals of the economy.

Keywords: currency crisis; self-fulfilling speculation; multiple equilibria; Brazilian exchange rate system (search for similar items in EconPapers)
JEL-codes: F33 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1999-11
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.econ.kuleuven.ac.be/ew/admin/Publications/DPS99/dps9919.PDF (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.econ.kuleuven.ac.be:80 (No such host is known. )

Related works:
Journal Article: Multiple Equilibria and the Credibility of the Brazilian ‘Crawling Peg’, 1995–1998 (2000)
Working Paper: Multiple Equilibria and the Credibility of the Brazilian "Crawling Peg", 1995-1998 (1999)
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:kul:kulwps:ces9919

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in International Economics Working Papers Series from Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics Contact information at EDIRC.
Bibliographic data for series maintained by Jan Van Hove ( this e-mail address is bad, please contact ).