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Exchange rate crisis : empirical and theoretical results (English)

This paper surveys the literature on exchange rate crises, examining empirical regularities observed around the time of the crises and reviewing recent approaches to modelling exchange rate crises. It discusses analogous work done in other areas of economic theory, focusing on use of a modified version of Hotelling model of depletable resources to examine speculative attacks which drain a commodity stock in the presence of a government which attempts to peg the commodity price. The paper also analyzes various components of the demand for international reserves by LCDs and presents original empirical work on the speculative, transactions and buffer stock roles in demand for foreign exchange reserves. In particular, it tests the proposition that countries which have at some time experienced major devaluations may exhibit different behavior around the time of actual crises (parameter shifting and other variables temporarily very significant) than when they are in their noncrisis or stable exchange rate state. The paper concludes with comments on the state of current research on exchange rate crises.

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Citation

Goldberg,Linda S.

Exchange rate crisis : empirical and theoretical results (English). Country Policy Department discussion paper,no. CPD 1985-39 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/976331492000637526/Exchange-rate-crisis-empirical-and-theoretical-results