Interest rate defenses of currency pegs
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Interest rate defenses of currency pegs by Juan SolГ©

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Published by International Monetary Fund, International Capital Markets in [Washington, D.C.] .
Written in English

Subjects:

  • Foreign exchange administration -- Econometric models.,
  • Interest rates -- Econometric models.

Book details:

Edition Notes

Statementprepared by Juan Sole.
SeriesIMF working paper -- WP/04/85
ContributionsInternational Monetary Fund. International Capital Markets.
The Physical Object
Pagination35 p. ;
Number of Pages35
ID Numbers
Open LibraryOL19308361M

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  This paper studies a policy often used to defend a currency peg: raising short-term interest rates. The rationale for this policy is to stem demand for foreign reserves. Yet, this mechanism is absent from most monetary models. This paper develops a general equilibrium model with asset market frictions where this policy can be effective. The friction I emphasize is the same as in Lucas ( Author: Juan Sole. Download Citation | Interest Rate Defenses of Currency Pegs | This paper studies a policy often used to defend currency pegs: raising short-term interest rates to stem demand for foreign : Juan Sole. Get this from a library! Output costs, currency crises, and interest rate defense of a peg. [Amartya Lahiri; Carlos A Végh Gramont; National Bureau of Economic Research.]. Get this from a library! Output costs, currency crises, and interest rate defense of a peg. [Amartya Lahiri; Carlos A Végh Gramont; National Bureau of Economic Research.] -- "Central banks typically raise short-term interest rates to defend currency pegs. Higher interest rates, however, often lead to a credit crunch and an output contraction.

Central banks typically raise short-term interest rates to defend currency pegs. Higher interest rates, however, often lead to a credit crunch and an output contraction. We model this trade-off in an optimizing, first-generation model in which the crisis may be delayed but is ultimately inevitable. Downloadable! Central banks typically raise short-term interest rates to defend currency pegs. Higher interest rates, however, often lead to a credit crunch and an output contraction. We model this trade-off in an optimizing, first-generation model in which the crisis may be delayed but is ultimately inevitable. We show that higher interest rates may delay the crisis, but raising interest.   Key Takeaways By pegging its currency, a country can gain comparative trading advantages while protecting its own economic interests. A pegged rate, or fixed exchange rate, can keep a country's exchange rate low, helping with exports. Conversely, pegged rates can sometimes lead to higher long-term. user’s guide, as it were, to interest rate defense as a signal. Thus, the stress is on simple models meant to get the basic points across. The plan of the pa-per is as follows. In section , I discuss interest rate defense as a signal of commitment to defending the exchange rate. In section , I introduce an.

Downloadable! Defending a government’s exchange-rate commitment with active interest rate policy is not an option in the Krugman-Flood-Garber (KFG) model of speculative attacks. In that model, the interest rate is the passive reflection of currency-depreciation expectations. In this paper we show how to adapt the KFG model to allow for an interest rate defense.   Defending a government's exchange-rate commitment with active interest rate policy is not an option in first-generation models of speculative attacks. In those models, the interest rate is the passive reflection of currency-depreciation expectations. DeRosa lays out clear and consice arguments in defense of free floating exchange rates and against fixed exchange-rate regimes. The author debunks the propaganda supporting fixed exchange-rate regimes with insightful analyses based on the facts of the various currency Reviews: 6.   How Countries Intervene To Defend Their Currency 1. Set Official Currency Rates. Countries can set an official exchange rate that is conducted for all official business, 2. Capital Controls. Countries can also attempt to control their currency market by .