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January 2000 - No - there is no systematic association between interest rates and the outcome of speculative attacks. Drawing on evidence from a large sample of speculative attacks in industrial and developing countries, Kraay argues that high interest rates do not defend currencies against speculative attacks. In fact, there is a striking lack of any systematic association between interest rates and the outcome of speculative attacks. The lack of clear empirical evidence on the effects of high interest rates during speculative attacks mirrors the theoretical ambiguities on this issue. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study the causes and consequences of financial crises. The author may be contacted at akraay@worldbank.org.

Balance Of Payments --- Central Bank --- Currencies and Exchange Rates --- Debt Markets --- Economic Stabilization --- Economic Theory and Research --- Emerging Markets --- Finance and Financial Sector Development --- Financial Literacy --- Fixed Exchange Rate --- Fixed Exchange Rates --- Fixed Nominal Exchange Rates --- Foreign Exchange --- Growth Rates --- Interest Rate Differentials --- Interest Rates --- International Capital Flows --- International Monetary Fund --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Monetary Authorities --- Monetary Authority --- Monetary Economics --- Monetary Policy --- Monetary Shocks --- Nominal Exchange Rate --- Private Sector Development --- Real Exchange Rate --- Real Interest Rates --- Tight Monetary Policy