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An Interest Rate Defense of a Fixed Exchange Rate?
Robert P. Flood,Olivier Jeanne
Limited preview - 2000
active interest rate attack interest rate bonds are imperfect calibration collapse interest rate currency crises currency peg Debt Path decrease domestic bonds domestic credit domestic monetary authority domestic-currency interest rate Drazen economy efficacy of interest equation 16 exchange rate jump exp(-ar fiscal problem fixed exchange rate fixed parity fixed peg fixed rate epoch Flood and Garber foreign bonds foreseen exchange rate given by equation government debt government's budget constraint hastens the collapse imperfect substitutes interest parity condition interest rate defense interest rate policy international reserves Krugman Laffer curve Lahiri and Vegh level of taxes money demand money supply nominal interest rate Post-Attack Interest Rate Post-Collapse Regime Pre-Attack and Post-Attack pre-attack interest rate Pre-Collapse Debt price level raising the interest real debt real interest rate real level reflection of devaluation risk aversion seigniorage revenues seignorage shadow exchange rate speculative attack standard KFG model strictly increasing total debt CETES+TESOBONOS UIP implies wedge