Arbeitspapier

Macroeconomic regime switches and speculative attacks

This paper explains a currency crisis as an outcome of a switch in how monetary policy and fiscal policy are coordinated. The paper develops a model of an open economy in which monetary policy starts active, fiscal policy starts passive and, in a particular state of nature, monetary policy switches to passive and fiscal policy switches to active. The probability of the regime switch is endogenous and changes over time together with the state of the economy. The regime switch is preceded by a sharp increase in interest rates and causes a jump in the exchange rate. The model predicts that currency composition of public debt affects dynamics of macroeconomic variables. Furthermore, the model is consistent with evidence from recent currency crises, in particular small seigniorage revenues.

Language
Englisch

Bibliographic citation
Series: SFB 649 Discussion Paper ; No. 2006,025

Classification
Wirtschaft
Monetary Policy
Policy Objectives; Policy Designs and Consistency; Policy Coordination
International Monetary Arrangements and Institutions
Subject
Coordination of monetary policy and fiscal policy
policy regime switch
currency crisis
speculative attack
fiscal theory of the price level
Geldpolitik
Finanzpolitik
Devisenspekulation
Währungskrise
Theorie

Event
Geistige Schöpfung
(who)
Maćkowiak, Bartosz
Event
Veröffentlichung
(who)
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
(where)
Berlin
(when)
2006

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Maćkowiak, Bartosz
  • Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk

Time of origin

  • 2006

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