The Macroeconomic Theory of Exchange Rate Crises

Giovanni Piersanti



This book deals with the genesis and dynamics of exchange rate crises in fixed or managed exchange rate systems. It provides a comprehensive treatment of the existing theories of exchange rate crises and of financial market runs. It aims to provide a survey of both the theoretical literature on international financial crises and a systematic treatment of the analytical models. It analyzes a series of macroeconomic models and demonstrates their properties and conclusions, including comparative statics and dynamic behavior. The models cover the range of phenomena exhibited in modern crises experienced in countries with fixed or managed exchange rate systems. Among the topics covered, beyond currency sustainability, are bank runs, the interaction between bank solvency and currency stability, capital flows and borrowing constraints, uncertainty about government policies, asymmetric information and herding behavior, contagion across markets and countries, financial markets and asset price bubbles, strategic interaction among agents and equilibrium selection, the dynamics of speculative attacks and of financial crashes in international capital markets. The book is intended for econometricians, academics, policymakers and specialists in the field, and postgraduate students in economics.

Table of Contents

Preface
Introduction

Part I: The Monetary Model under Flexible Exchange Rates
1. The Basic Monetary Model of the Exchange Rate

Part II: Fixed Exchange-Rate Regimes and Currency Crises
2. Crises and Policy Imbalances
3. Crises and Self-Fulfilling Expectations
4. Dynamics of Crises
5. Epilogue

Mathematical Appendix
Introduction
A.1. Basic Properties of Ordinary Differential Equations
A.2. Basic Properties of Ordinary Difference Equations
A.3. Nonlinear Dynamics, Bifurcation and Chaos
A.4. Dynamic Optimization
A.5. Stochastic Equations