A Model of Contagious Currency Crises with Application to Argentina
Author | : Ms.Nada Choueiri |
Publisher | : International Monetary Fund |
Total Pages | : 27 |
Release | : 1999-03-01 |
ISBN-10 | : 9781451844788 |
ISBN-13 | : 1451844786 |
Rating | : 4/5 (88 Downloads) |
Download or read book A Model of Contagious Currency Crises with Application to Argentina written by Ms.Nada Choueiri and published by International Monetary Fund. This book was released on 1999-03-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a model of contagious currency crises: crises transmit across countries by raising the risk premium on government bonds. Three types of equilibria can occur: a “no-collapse” equilibrium (crises never transmit from abroad); a “collapse” equilibrium (crises are inevitably contagious); or a “fundamentals” equilibrium (crises are contagious if domestic fundamentals are weak). A calibration exercise finds that the 1995 turmoil in Argentina coexisted with a combination of risk-averse investors and weak credibility in the currency board arrangement. This turmoil could only be attributed to a Tequila effect from the Mexican crisis alone if investors were excessively risk-averse.