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| Author: | Agénor, P-R. |
| Title: | Market sentiment and macroeconomic fluctuation under pegged exchange rates |
| Journal: | Economica
2006 : NOV, VOL. 73:292, p. 579-604 |
| Index terms: | crises exchange rates financial markets interest rates |
| Language: | eng |
| Abstract: | The effects of an adverse change in market sentiment are studied in an intertemporal optimizing framework with imperfect capital mobility. It is defined as a temporary increase in the premium faced by domestic borrowers on world financial markets. This paper explorer the shock that leads to a rise in domestic interest rates, capital outflows and a drop in official reserves, a reduction in bank deposits and loans, a contraction in output, and an increase in unemployment. |
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