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Author: | Flood, R. P: Marion, N. P. |
Title: | Self-fulfilling risk predictions: an application to speculative attacks |
Journal: | Journal of International Economics
2000 : FEB, VOL. 50:1, p. 245-268 |
Index terms: | Financial risk Devaluation Currency markets Exchange rates Mexico |
Language: | eng |
Abstract: | The authors show that changing market beliefs about currency risk can generate a self-fulfilling speculative attack on a fixed exchange rate. They illustrate this point by introducing an endogenous risk premium into a "first-generation model" of a speculative attack. The model is modified to take account of sterilization, debt-financed fiscal deficits and anticipatory price-setting behavior. |
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