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Speculative Currency Attacks: Role of Inconsistent Macroeconomic Policies and Real Exchange Rate Overvaluation

Economic Analysis Review

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Title Speculative Currency Attacks: Role of Inconsistent Macroeconomic Policies and Real Exchange Rate Overvaluation
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Creator Pistelli, Alfredo
 
Description This paper provides a critical analysis of Kaminsky and Reinhart (1999) (KR), perhaps the most prominent empirical paper on causes of currency crises. After dealing with problems present in this paper, it proposes an aggregate leading indicator of crisis. The proposed indicator performs better than a composite index based on the best six individual indicators of KR, both in terms of accuracy and predictive capacity, and represents a unified version of the currency crises approach that emphasizes the role of inconsistent macroeconomic policies as an explanation of currency crises, and the approach that emphasizes the role of tradeoffs among policymakers decisions as the main cause of these crises. Variables included in the proposed leading indicator are: the deviation of the actual stock of international reserves from an estimated demand for international reserves; the real growth of domestic credit; the ratio of domestic credit to M2; and the behavior of both the real exchange rate and industrial production as a measure of overvaluation of the real exchange rate.
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Publisher Universidad Alberto Hurtado - Facultad de Economía y Negocios
 
Contributor —
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Date 2010-03-02
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier http://www.rae-ear.org/index.php/rae/article/view/70
 
Source Revista de Análisis Económico - Economic Analysis Review; Vol 22, No 2 (2007); 3-27
Revista de Análisis Económico – Economic Analysis Review; Vol 22, No 2 (2007); 3-27
0718-8870
0716-5927
 
Language eng
 
Relation http://www.rae-ear.org/index.php/rae/article/view/70/135