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Do high interest rates defend currencies during speculative attacks?: new evidence

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Do high interest rates defend currencies during speculative attacks? new evidence. / Goderis, Benedikt; Ioannidou, Vasso P.

In: Journal of International Economics, Vol. 74, No. 1, 01.2008, p. 158-169.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Goderis B, Ioannidou VP. Do high interest rates defend currencies during speculative attacks? new evidence. Journal of International Economics. 2008 Jan;74(1):158-169. doi: 10.1016/j.jinteco.2007.05.003

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Goderis, Benedikt ; Ioannidou, Vasso P. / Do high interest rates defend currencies during speculative attacks? new evidence. In: Journal of International Economics. 2008 ; Vol. 74, No. 1. pp. 158-169.

Bibtex

@article{a78f436bbcdd427c9763acac3189dab3,
title = "Do high interest rates defend currencies during speculative attacks?: new evidence",
abstract = "Kraay [Kraay, A., 2003. Do high interest rates defend currencies during speculative attacks? Journal of International Economics 59, 297-321.] documents the lack of any systematic association between monetary policy and the outcome of a speculative attack. This paper revisits Kraay's work and modifies it by introducing an improved measure of monetary policy and an additional country-specific fundamental, short-term corporate debt, to capture balance sheet vulnerabilities emphasized by the recent currency crises literature. The results show that for low levels of short-term corporate debt, raising interest rates lowers the probability of a successful attack. This effect decreases and eventually reverses for higher levels of debt. These findings contrast earlier empirical evidence and imply a fundamental reconsideration of the role of monetary policy during currency crises.",
keywords = "Speculative attacks, Currency crises , Monetary policy , Short-term debt",
author = "Benedikt Goderis and Ioannidou, {Vasso P.}",
year = "2008",
month = jan,
doi = "10.1016/j.jinteco.2007.05.003",
language = "English",
volume = "74",
pages = "158--169",
journal = "Journal of International Economics",
issn = "0022-1996",
publisher = "Elsevier",
number = "1",

}

RIS

TY - JOUR

T1 - Do high interest rates defend currencies during speculative attacks?

T2 - new evidence

AU - Goderis, Benedikt

AU - Ioannidou, Vasso P.

PY - 2008/1

Y1 - 2008/1

N2 - Kraay [Kraay, A., 2003. Do high interest rates defend currencies during speculative attacks? Journal of International Economics 59, 297-321.] documents the lack of any systematic association between monetary policy and the outcome of a speculative attack. This paper revisits Kraay's work and modifies it by introducing an improved measure of monetary policy and an additional country-specific fundamental, short-term corporate debt, to capture balance sheet vulnerabilities emphasized by the recent currency crises literature. The results show that for low levels of short-term corporate debt, raising interest rates lowers the probability of a successful attack. This effect decreases and eventually reverses for higher levels of debt. These findings contrast earlier empirical evidence and imply a fundamental reconsideration of the role of monetary policy during currency crises.

AB - Kraay [Kraay, A., 2003. Do high interest rates defend currencies during speculative attacks? Journal of International Economics 59, 297-321.] documents the lack of any systematic association between monetary policy and the outcome of a speculative attack. This paper revisits Kraay's work and modifies it by introducing an improved measure of monetary policy and an additional country-specific fundamental, short-term corporate debt, to capture balance sheet vulnerabilities emphasized by the recent currency crises literature. The results show that for low levels of short-term corporate debt, raising interest rates lowers the probability of a successful attack. This effect decreases and eventually reverses for higher levels of debt. These findings contrast earlier empirical evidence and imply a fundamental reconsideration of the role of monetary policy during currency crises.

KW - Speculative attacks

KW - Currency crises

KW - Monetary policy

KW - Short-term debt

U2 - 10.1016/j.jinteco.2007.05.003

DO - 10.1016/j.jinteco.2007.05.003

M3 - Journal article

VL - 74

SP - 158

EP - 169

JO - Journal of International Economics

JF - Journal of International Economics

SN - 0022-1996

IS - 1

ER -