Dai, Meixing (2008): Public debt and currency crisis: how central bank opacity can make things bad? Published in: Economics Bulletin , Vol. 29, No. 1 (February 2009): pp. 190-198.
Download (158kB) | Preview
This paper examines how the transparency in monetary policy decision can impact the likelihood of currency crisis in a simple open economy model with public debt. In the presence of opacity, it is found that if the debt is high, the government will devaluate and vice versa, and the self-fulfilling multiple equilibria solution disappears. Furthermore, the opacity reduces the threshold of public debt above which the government is considered as totally lacking the credibility in its pre-commitment to maintain fixed the exchange rate.
|Item Type:||MPRA Paper|
|Original Title:||Public debt and currency crisis: how central bank opacity can make things bad?|
|Keywords:||central bank transparency, public debt, currency crisis, speculative attack|
|Subjects:||F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation: Models and Applications
O - Economic Development, Technological Change, and Growth > O2 - Development Planning and Policy > O23 - Fiscal and Monetary Policy in Development
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Date Deposited:||08. Mar 2009 15:21|
|Last Modified:||12. Feb 2013 17:44|
Aghion, Philippe & Philippe Bacchetta & Abhijit Banerjee (2001), “Currency crises and monetary policy in an economy with credit constraints,” European Economic Review, Vol. 45, Iss. 7, pp. 1121-1150.
Allegret, Jean-Pierre & Camille Cornand (2006), “The Pros and Cons of Higher Transparency: The case of Speculative Attacks”, Louvain Economic Review, vol. 72, n°3, pp. 215-246.
Amato, Jeffery D. & Stefan Gerlach (2002), “Inflation targeting in emerging market and transition economies: Lessons after a decade”, European Economic Review, Volume 46, Issues 4-5, pp. 781-790.
Bernanke, Ben S. & Mark Gertler & Simon Gilchrist (1999), “The Financial Accelerator in a Quantitative Business Cycle Framework”, in J. B. Taylor & M. Woodford (eds.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
Chan, Kenneth S. & Y. Stephen Chiu (2002), “The role of (non-)transparency in a currency crisis model”, European Economic Review, Volume 46, Issue 2, pp. 397-416.
Chang, Roberto & Andres Velasco (2001), “A Model of Financial Crises in Emerging Markets,” Quarterly Journal of Economics, Vol. 116, Iss. 2, pp. 489-517.
Chang, Roberto & Giovanni Majnoni (2002), “Fundamentals, beliefs, and financial contagion”, European Economic Review, Volume 46, Issues 4-5, pp. 801-808.
Clare, A. & R. Courtenay (2001), “What Can We Learn about Monetary Policy Transparency from Financial Market Data?”, Bundesbank Discussion Paper 06/01.
Corsetti, Giancarlo & Paolo Pesenti & Nouriel Roubini. (1999). “Paper Tigers? A Model of the Asian Crisis.” European Economic Review, v. 43, iss. 7, pp. 1211-36.
Crowe, Christopher & Ellen E. Meade (2008), “Central bank independence and transparency: Evolution and effectiveness”, European Journal of Political Economy, Volume 24, Issue 4, pp. 763-777.
de Haan, Jakob & Sylvester C.W. Eijffinger & Krzysztof Rybiński (2007), “Central bank transparency and central bank communication: Editorial introduction”, European Journal of Political Economy, Volume 23, Issue 1, Central bank transparency and central bank communication, pp. 1-8.
Ehrmann, M. & M. Fratzscher (2007), “The Timing of Central Bank Communication”, European Journal of Political Economy, Volume 23, Issue 1, pp. 124-145.
Flood, Robert & Peter Garber. (1984). “Collapsing Exchange Rate Regimes: Some Linear Examples”, Journal of International Economics 17, 1–13.
Geraats, Petra M. (2002), “Central Bank Transparency”, Economic Journal 112, pp. 532-565.
Giannetti, Mariassunta (2007), “Financial liberalization and banking crises: The role of capital inflows and lack of transparency”, Journal of Financial Intermediation, Volume 16, Issue 1, pp. 32-63.
Heinemann, Frank & Gerhard Illing (2002), “Speculative attacks: unique equilibrium and transparency”, Journal of International Economics, Volume 58, Issue 2, pp. 429-450. Issing O. (2001), “Monetary policy and financial markets”, Speech, ECB, Frankfurt am Main, 18 June.
Krugman, Paul (1979), “A Model of Balance-of-Payments Crises.” Journal of Money, Credit, and Banking 11, 311–325.
Krugman, Paul (1999), “Balance Sheets, the Transfer Problem, and Financial Crises,” International Tax and Public Finance, vol. 6(4), pp. 459-472.
Mendoza, E.G. (2002), “Credit, prices, and crashes business cycles with a sudden stop”, in: S. Edwards and J.A. Frankel, Editors, Preventing Currency Crises in Emerging Markets, University of Chicago Press, Chicago (2002), pp. 335–383.
Morris, S. & H.S. Shin (1998), “Unique equilibrium in a model of self-fulfilling currency attacks”, American Economic Review 88, pp. 587–597.
Muller, P. & M. Zelmer (1999), “Greater Transparency in Monetary Policy: Impact on Financial Markets”, Bank of Canada Technical Report 86.
Obstfeld, Maurice (1986), “Rational and self-ful5lling balance of payments crises”, American Economic Review 76, pp. 72–81.
Obstfeld, Maurice (1994), “The Logic of Currency Crises”, Cahiers économique et monétaires 43, pp. 189–212.
Obstfeld, Maurice (1996), “Models of currency crises with self-fulfilling features”, European Economic Review 40, pp. 1037–1047.
Rafferty M., Tomljanovich M. (2002), “Central Bank Transparency and Market Efficiency: An Econometric Analysis”, Journal of Economics and Finance 26, pp. 150-161.
Sachs, Jeffrey D. & Aaron Tornell & Andres Velasco (1996), “The Mexican Peso Crisis: Sudden Death or Death Foretold?” Journal of international economics 41, pp. 265-83.
Sbracia, M. & A. Zaghini (2001), “Expectations and information in second generation currency crises models”, Economic Modelling 18, 203–222.
Siklos, P. L. (2000), “Monetary Policy Transparency, Public Commentary, and Market Perceptions about Monetary Policy in Canada”, Discussion Paper Series 1: Economic Studies 2000, 08. Deutsche Bundesbank, Research Centre.
Vaugirard, Victor (2007), “Informational contagion of bank runs in a third-generation crisis model”, Journal of International Money and Finance, Volume 26, Issue 3, pp. 403-429.
Williams, Andrew (2008), “On the release of information by governments: Causes and consequences”, Journal of Development Economics, Forthcoming.
Wilson, Berry & Anthony Saunders (2004), “Monetary secrecy and selective disclosure: The emerging market case of Mexico’s monetary reporting”, Review of Financial Economics, Volume 13, Issues 1-2, pp. 199-210.