Interest Rate Defense against Speculative Attack as a Signal

Edited by Allan Drazen

in Managing Currency Crises in Emerging Markets

Published by University of Chicago Press

Published in print February 2003 | ISBN: 9780226155401
Published online February 2013 | e-ISBN: 9780226155425 | DOI:
Interest Rate Defense against Speculative Attack as a Signal

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This chapter deals with an interest rate defense against a speculative attack on a currency regime. It argues that a major effect of high interest rates is to signal the government's willingness or ability to defend the exchange rate against a potential crisis. It explores a class of models in which an interest rate defense alters the speculators' views of the type of government they face, introduces an alternative way of defending a currency system and considers the information an interest rate defense conveys about the ability of a government to defend.

Keywords: interest rate; currency system; exchange rate; government; speculators

Chapter.  10028 words. 

Subjects: International Economics

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