Currency Crises and Foreign Reserves : A Simple Model

Disyatat, Piti

This paper addresses the important question of how far a government will run down its stock of foreign reserves in a defense of a fixed exchange rate. An optimizing model of currency crisis is presented in which the decision of whether or not to borrow in a defense of a peg is explicitly analyzed. The threshold level of reserves is then determined endogenously and shown to be a function of fundamental economic variables. The analysis also demonstrates how an increase in the level of reserves, a credit-rating upgrade, or the imposition of capital controls can remove the multiplicity of equilibria

MoreLess

Year of publication:	2001
Authors:	Disyatat, Piti
Other Persons:	Disyatat, Piti (contributor)
Publisher:	Washington, D.C : International Monetary Fund
Subject:	Währungskrise \| Currency crisis \| Währungsreserven \| Foreign exchange reserves \| Theorie \| Theory