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Working Paper
Exchange rate overshooting and the costs of floating
Currency crises are usually associated with large nominal and real depreciations. In some countries depreciations are perceived to be very costly (?fear of floating?). In this paper we try to understand the reasons behind this fear. We first look at episodes of currency crises in the 1990s and establish that countries entering a crisis with high levels of foreign debt tend to experience large real exchange rate overshooting (devaluation in excess of the long-run equilibrium level) and large output contractions. We then develop a model of a small open economy that helps to explain this ...
Conference Paper
Exchange rate overshooting and the costs of floating
Currency crises are usually associated with large nominal and real depreciations. In some countries depreciations are perceived to be very costly (?fear of floating?). In this paper we try to understand the reasons behind this fear. We first look at episodes of currency crises in the 1990s and establish that countries entering a crisis with high levels of foreign debt tend to experience large real exchange rate overshooting (devaluation in excess of the long run equilibrium level) and large output contractions. We the develop an model of an open economy with monopolistic competition and ...