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Managing Currency Crises in Emerging Markets$
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Michael P. Dooley and Jeffrey A. Frankel

Print publication date: 2003

Print ISBN-13: 9780226155401

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226155425.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 06 July 2022

Interest Rate Defense against Speculative Attack as a Signal

Interest Rate Defense against Speculative Attack as a Signal

A Primer

(p.37) 2 Interest Rate Defense against Speculative Attack as a Signal
Managing Currency Crises in Emerging Markets
Allan Drazen
University of Chicago Press

This chapter deals with an interest rate defense against a speculative attack on a currency regime. It argues that a major effect of high interest rates is to signal the government's willingness or ability to defend the exchange rate against a potential crisis. It explores a class of models in which an interest rate defense alters the speculators' views of the type of government they face, introduces an alternative way of defending a currency system and considers the information an interest rate defense conveys about the ability of a government to defend.

Keywords:   interest rate, currency system, exchange rate, government, speculators

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