search query: @author Jeanne, O. / total: 12
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| Author: | Bensaid, B. Jeanne, O. |
| Title: | The instability of fixed exchange rate systems when raising the nominal interest rate is costly |
| Journal: | European Economic Review
1997 : AUG, VOL. 41:8, p. 1461-1478 |
| Index terms: | CURRENCY CRISES INTEREST RATES DEVALUATION EUROPEAN MONETARY SYSTEM |
| Language: | eng |
| Abstract: | The paper points to a vicious circle which may arise when a government tries to defend its currency by raising the nominal interest rate in a fixed exchange rate system. A stylised model in which raising the nominal interest rate helps to maintain the parity is presented. The maintaining is costly for the government. This situation is related to speculation against the currency. It is shown that this mechanism can generate self-fulfilling currency crises. Some informal evidence is provided, showing that the model explains some features of the 1992-1993 EMS crisis. |
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