A model of currency crises with heterogeneous market beliefs |
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| Affiliation: | 1. INAF - Osservatorio Astrofisico di Arcetri, Largo E. Fermi 5, 50125 Firenze, Italy;2. INAF - Osservatorio Astrofisico di Torino, Strada Osservatorio 20, 10025 Pino Torinese, Italy;3. Università di Pisa, Dipartimento di Fisica, Largo Pontecorvo 3, 56127 Pisa, Italy;4. Observatoire de la Côte d׳Azur, Bv de l׳Observatoire - CS 34229, 06304 Nice Cedex 4, France;1. HEC Sousse, University of Sousse, Tunisia;2. HEC Sousse, LaREMFiQ Laboratory, University of Sousse, Tunisia |
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| Abstract: | This paper shows that the approach followed by Tamborini (2015) in analyzing and interpreting the euro area public debt crisis, based on the role played by agents characterized by heterogeneous market beliefs, can be applied also to the case of currency crises. By doing so, rather than considering the private sector as an atomistic player endowed with perfect information, and by considering a central bank that optimizes the amount of unsterilized inflow of foreign reserves in a Mundell-Fleming type speculative attack model, allows to explain the interest rates convex non-linearity that characterized, for example, a country like Italy during the 1992–93 EMS crisis. |
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| Keywords: | Currency crises Speculative attacks Fixed exchange rates Heterogeneous market beliefs |
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