Output Costs, Currency Crises and Interest Rate Defence of A Peg  

Oleh:

Lahiri, Amartya ; Vegh, Carlos A.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 117 no. 516 (Jan. 2007), page 216-239.
Topik: output; output cost; crises; interest rate; defence of a peg
Fulltext: 216.pdf (316.77KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: EE28.24 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

Central banks typically raise short - term interest rates to defend currency pegs. Higher interest rates, however, often lead to a credit crunch and an output contraction. We model this trade -off in an optimising, first - generation model in which the crisis may be delayed but is ultimately inevitable. We show that higher interest rates may delay the crisis, but raising interest rates beyond a certain point may actually bring forward the crisis due to the large negative output effect. The optimal interest rate defence involves setting high interest rates (relative to the no defence case) both before and at the moment of the crisis.

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