Exchange rate market tensions in a small open economy during the transition to ...

• Author(s): Abreu, Margarida
• Date: 1999
• Persistent ID: http://hdl.handle.net/10400.5/546
• Origin: Repositório da UTL
• Subject(s): Exchange rate policy; Exchange rate crisis; Uncertainty; Financial market agent's behavior
• Document Type: Preprint
• Language: English

Description

This paper studies the various Portuguese escudo exchange rate crises during the period 1992-95. Were they the result of the market evaluation of the Portuguese economy fundamentals? Were they the outcome of the expected political changes? Or, to the contrary, can we suggest self-fulfilling crises? After a general introduction, the paper starts with an estimation of the exchange rate policy credibility a la Svensson and a brief description of the escudo exchange rate crises. The paper then presents different theoretical explaination for speculative attacks, paying special attention to the new formalizations of the behavior of market agents. We conclude with some normative remarks concerning the Portuguese exchange rate crises, and some lessons that Asian countries can learn from the Portuguese experience.