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| Tekijä: | Lahiri, A. Vegh, C.A. |
| Otsikko: | Output costs, currency crises and interest rate defence of a peg |
| Lehti: | Economic Journal
2007 : JAN, VOL. 117:516, p. 216-239 |
| Asiasana: | economic crisis interest rates central banks models |
| Kieli: | eng |
| Tiivistelmä: | Currency pegs are defended by central banks through raising short-term interest rates (hereafter as: i-rts). Higher i-rts., however, often lead to a credit crunch and an output contraction. This trade-off is modeled in an optimizing, first generation model in which the crisis (here as: crs.) may be delayed but is ultimately inevitable. It is shown that higher i-rts. may delay the crs., but raising i-rts. beyond a certain point may actually bring forward the crs. due to the negative output effect. The optimal i-rts. defence involves setting high i-rts. both before and at the moment of the crs. |
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