Non-Uniqueness in the First Generation of Balance Payments Crisis Models

Economics

Further details

In this paper I show that an attack on the Central Bank's foreign exchange reserves can take place on any date in a "first generation" balance of payments crisis model, contrary to Krugman (1979). This may leave the Central Bank with reserves in excess of the level that they wish to defend, which seems consistent with the data. But for the attack to be successful the amount of foreign exchange reserves that the Central Bank will lose on any date is uniquely determined.