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June 1999 - A regime-switching framework is used to study speculative attacks against European Monetary System currencies during 1979-93. Peria uses a regime-switching framework to study speculative attacks against European Monetary System (EMS) currencies during 1979-93. She identifies speculative attacks by modeling exchange rates, reserves, and interest rates as time series subject to discrete regime shifts. She assumes two states: tranquil and speculative. She models the probabilities of switching between states as a function of fundamentals and expectations. She concludes that: The switching models with time-varying transition probabilities capture most of the conventional episodes of speculative attacks; Speculative attacks do not always coincide with currency realignments. Both economic fundamentals and expectations determine the likelihood of switching from a period of tranquility to a speculative attack. The budget deficit appears to be an especially important factor driving the probability of switching to a speculative regime. Given the importance of anticipating and, wherever possible, avoiding crises, it might be useful to conduct forecasting exercises to determine whether the switching framework proposed here can be used to forecast crises in countries outside the sample. Because currency crises tend to occur simultaneously in two or more countries, it also might be useful to adapt the regime-switching framework to explore the role of contagion in explaining crises. This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to understand currency crises. The author may be contacted at mmartinezperia@worldbank.org.

Central Bank --- Crawling Peg --- Currencies --- Currencies and Exchange Rates --- Currency --- Debt Markets --- Dependent Variable --- Devaluations --- Economic Stabilization --- Economic Theory and Research --- Emerging Markets --- European Monetary System --- Exchange Rate --- Exchange Rate Mechanism --- Exchange Rates --- Federal Reserve --- Federal Reserve Bank --- Finance and Financial Sector Development --- Financial Literacy --- Financial Markets --- Fixed Exchange Rate --- Fixed Exchange Rate Regimes --- Fixed Exchange Rate Systems --- Interest Rates --- Macroeconomics and Economic Growth --- Private Sector Development --- Speculative Attack --- Speculative Attacks --- Speculative Pressure

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The paper presents a dynamic model for small to medium open economies operating under a fixed exchange rate regime. The model provides a partial explanation of the channels through which fiscal and monetary policy affects the real exchange rate. An empirical investigation is conducted for the case of Argentina during the currency board period of 1991-2001. Empirical estimates show that fiscal policy may indeed be an efficient instrument for promoting macroeconomic stability insofar as it encourages convergence toward long-run equilibrium and alters the long-term balance between exports and consumption, both private and public. The simulation applied to Argentina shows that if the share of public spending in the economy is higher than the share of imports, an increase in the tax rate will stimulate capital stock slightly, at least in the short term, and depreciate the real effective exchange rate. In the long run, the fiscal policy affects the value of the real exchange rate and consequently external competitiveness.

Currencies and Exchange Rates --- Currency --- Currency board --- Debt Markets --- Economic Stabilization --- Economic Theory and Research --- Emerging Markets --- Finance and Financial Sector Development --- Fiscal Policy --- Fixed Exchange Rate --- Fixed Exchange Rate Regime --- Macroeconomic stability --- Macroeconomics and Economic Growth --- Monetary policy --- Open economies --- Poverty Reduction --- Private Sector Development --- Real exchange rate

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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

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331.156 --- Geldwezen van 1914 tot 1945 --- International finance --- Gold standard --- History. --- 1997 Asian financial crisis. --- Asset. --- Austerity. --- Balance of payments. --- Bank of England. --- Bank run. --- Bank. --- Barry Eichengreen. --- Behalf. --- Bimetallism. --- Bretton Woods system. --- Budget. --- Capital control. --- Capital flight. --- Central bank. --- Commodity. --- Competitiveness. --- Credit (finance). --- Currency. --- Current account. --- Debt crisis. --- Debt. --- Default (finance). --- Deflation. --- Deposit account. --- Depreciation. --- Deutsche Bundesbank. --- Deutsche Mark. --- Devaluation. --- Developed country. --- Economic growth. --- Economic policy. --- Economics. --- Economy. --- European Central Bank. --- European Monetary System. --- Exchange rate. --- Exorbitant privilege. --- Expense. --- Export. --- Fiat money. --- Finance. --- Financial crisis of 2007–08. --- Financial crisis. --- Financial institution. --- Financial intermediary. --- Fiscal policy. --- Fixed exchange-rate system. --- Floating exchange rate. --- Foreign direct investment. --- Foreign exchange market. --- French franc. --- Funding. --- Global imbalances. --- Gold reserve. --- Gold standard. --- Government bond. --- Government debt. --- Guarantee. --- Income. --- Inflation. --- Interest rate. --- Interest. --- International Monetary Fund. --- International monetary systems. --- Investment. --- Investor. --- Latin America. --- Lender of last resort. --- Liability (financial accounting). --- Liberalization. --- Line of credit. --- Market (economics). --- Market liquidity. --- Marshall Plan. --- Monetary authority. --- Monetary policy. --- Monetary reform. --- Monetary system. --- Money supply. --- Payment. --- Policy. --- Pound sterling. --- Provision (accounting). --- Rate of return. --- Receipt. --- Recession. --- Relative price. --- Shortage. --- Special drawing rights. --- Speculation. --- Speculative attack. --- Tariff. --- Tax. --- Trader (finance). --- Unemployment. --- United States dollar. --- Welfare. --- World War II. --- World economy.

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"Inflation, in which all prices and wages in an economy rise, is mysterious. If a war breaks out in the Middle East, and the price of oil goes up, the mechanism is no great mystery-supply and demand often work pretty visibly. But if you ask the grocer why the price of bread is higher, he or she will blame the wholesaler, who will blame the baker, who will blame the wheat supplier, and so on. Perhaps the ultimate cause is a government printing more money, but there is really no way to know this for certain but to sit down in an office with statistics, armed with some decent economic theory. But current economic theory doesn't really explain why we haven't seen inflation for so long, and more and more economists think that current theory doesn't hold together, or provide much guidance for how central banks should behave if inflation does break out. Many also worry that central banks have much less power over the economy than they think they do, and much less understanding of the mechanism behind what power they do have. The Fiscal Theory of the Price Level is a comprehensive new approach to monetary policy. Economist John Cochrane argues that money has value because the government accepts it for tax payments. This insight, he argues, leads to a deep re-reading of monetary policy and institutions. Inflation comes when a government is unable to repay its debts, rather than from mismanagement of the split of debt between money and bonds. In the book, he will analyze institutional design, historical episodes, and compare fiscal theory to the Keynesian and new-Keynesian theory based on interest rate targets, and to monetarism. The book offers an overview and introduction to the range of contemporary monetary economics and history of thought as well as the fiscal theory"--

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