Speculative Attacks, Forward Market Intervention and the Classic Bear Squeeze
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Summary:
A typical strategy used by speculators to launch an attack on a fixed exchange regime is the use of forward markets. Central banks also intervene in forward markets to counter speculation. This paper addresses the question of how an attack is launched on the forward market, and what the optimal policy response to such speculation is in the forward and spot markets. The paper also demonstrates how central banks can impose a bear squeeze on speculators. Recent events in South East Asian currency markets are interpreted within the framework of the model’s predictions.
Series:
Working Paper No. 1997/164
Subject:
Banking Commercial banks Currencies Currency markets Exchange rate arrangements Exchange rates Financial institutions Financial markets Foreign exchange Money
English
Publication Date:
December 1, 1997
ISBN/ISSN:
9781451980202/1018-5941
Stock No:
WPIEA1641997
Pages:
37
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