An interest rate defense of a fixed exchange rate?

• 成果类型: Article
• 署名作者: Flood, RP; Jeanne, O
• 署名单位: International Monetary Fund
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2004.09.001
• 发表日期: 2005
• 页码: 471-484
• 关键词: speculative attack; Fixed exchange rate regime; fiscal policy; interest rate

摘要

Defending a government's exchange-rate commitment with active interest rate policy is not an option in first-generation models of speculative attacks. In those models, the interest rate is the passive reflection of currency-depreciation expectations. In this paper, we show how to adapt the first-generation framework to allow for an interest rate defense. It is shown that increasing domestic currency interest rate before the attack makes domestic assets more attractive according to an asset substitution effect, but weakens the domestic currency by increasing the government's fiscal liabilities. As a result, an interest rate defense can be successftil only conditional on sound fiscal policy. (c) 2004 Elsevier B.V. All rights reserved.