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Author: | Tarashev, N.A. |
Title: | Speculative attacks and the information role of the interest rate |
Journal: | Journal of the European Economic Association
2007 : MAR, VOL. 5:1, p. 1-36 |
Index terms: | investment strategy currency foreign exchange interest rates information models |
Language: | eng |
Abstract: | In this paper, currency attacks are modeled as carried out by speculators. For a plausible type of investment strategies, the dual role of the interest rate allows the model to explain abrupt and intense speculative attacks only through economic fundamentals, without resorting to sunspot variables etc. In this result, a novel policy implication is underlain: An official intervention in the foreign exchange market may reinforce a currency peg by influencing the precision of public information. |
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