Speculative Attacks and Models of Balance of Payments Crises

IMF Working Papers, October 1, 1991

Source details

Paper reviews recent developments in the theoretical and empirical analysis of balance-of-payments crises.
A simple analytical model highlighting the process leading to such crises is developed and then extended.
Extensions address: alternative post-collapse regimes, uncertainty, real sector effects, external borrowing and capital controls, imperfect asset substitutability, sticky prices, and endogenous policy switches.
Empirical evidence on the collapse of exchange rate regimes is examined.
Major implications of the analysis for macroeconomic policy are discussed.

Core contribution: development of a simple analytical model that highlights the process leading to balance-of-payments crises.
Extensions considered:
- Alternative post-collapse regimes
- Uncertainty
- Real sector effects
- External borrowing and capital controls
- Imperfect asset substitutability
- Sticky prices
- Endogenous policy switches

Empirical evidence on the collapse of exchange rate regimes is examined.
Case-related keywords in the paper include: Chilean peso, Mexican peso, regime shift.

The paper discusses major implications of the theoretical and empirical analysis for macroeconomic policy.
Subject tags relevant to policy discussion: Conventional peg, Domestic credit, Exchange rate arrangements, Exchange rates, Foreign exchange, Money, Real exchange rates.
Keywords relevant for policy and analysis: balance of payments, balance-of-payments crisis, credit creation, domestic credit, exchange rate commitment, exchange rate crisis, exchange rate differential time, inflation rate, money stock, nominal exchange rate, rate depreciation, real exchange rates, regime shift.