Do High Interest Rates Defend Currencies during Speculative Attacks?

Do High Interest Rates Defend Currencies during Speculative Attacks?

Drawing on evidence from a large sample of speculative attacks in industrial and developing countries, the author argues that high interest rates do not defend currencies against speculative attacks. In fact, there is a striking lack of any systematic association between interest rates and the outcome of speculative attacks. The lack of clear empirical evidence on the effects of high interest rates during speculative attacks mirrors the theoretical ambiguities on this issue.

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Bibliographic Details
Main Author: Kraay, Aart
Language:English
en_US
Published: World Bank, Washington, DC 2000-01
Subjects:ADVERSE EFFECTS, BANKING CRISIS, BENCHMARK, BLACK MARKET, BLACK MARKET PREMIUM, BORROWING COSTS, BUSINESS CYCLE, CAPITAL LOSSES, CAPITAL MOBILITY, CAPITAL MOVEMENTS, CENTRAL BANK, CURRENCY CRISES, DEPOSIT MONEY, DEPOSIT MONEY BANKS, DEVALUATION, DEVELOPING COUNTRIES, DISCOUNT RATE, DOMESTIC CREDIT, DOMESTIC CURRENCY, DOMESTIC ECONOMY, DOMESTIC INTEREST RATES, ECONOMIC ACTIVITY, EMPIRICAL EVIDENCE, EXCHANGE RATE REGIME, EXCHANGE RATE REGIMES, EXPECTED RETURN, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL MARKETS, FIXED EXCHANGE RATE, FIXED EXCHANGE RATES, FIXED NOMINAL EXCHANGE RATES, FOREIGN CURRENCY, FOREIGN EXCHANGE, FREE CAPITAL MOBILITY, FREQUENCY DISTRIBUTION, GDP, GROWTH RATE, GROWTH RATES, HIGH INFLATION, HIGH INTEREST RATES, INCOME COUNTRIES, INFLATION RATES, INTEREST RATE, INTEREST RATE DIFFERENTIALS, INTEREST RATES, INTERNATIONAL MONETARY FUND, LOCAL CURRENCY, MACROECONOMIC VARIABLES, MACROECONOMICS, MARGINAL COST, MEDIAN VALUE, MONETARY AUTHORITIES, MONETARY AUTHORITY, MONETARY POLICY, MONEY MARKET, NOMINAL EXCHANGE RATE, NOMINAL INTEREST RATE, OPEN MARKET OPERATIONS, OPTIMIZATION, OVERVALUATION, POLICY RESEARCH, POSITIVE EFFECTS, REAL EXCHANGE, REAL EXCHANGE RATE, REAL INTEREST, REAL INTEREST RATES, RESERVE REQUIREMENTS, RESERVES, RISK AVERSE, STANDARD DEVIATION, TIGHT MONETARY POLICY,
Online Access:http://documents.worldbank.org/curated/en/2000/01/439015/high-interest-rates-defend-currencies-during-speculative-attacks
https://hdl.handle.net/10986/19853
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Summary:Drawing on evidence from a large sample of speculative attacks in industrial and developing countries, the author argues that high interest rates do not defend currencies against speculative attacks. In fact, there is a striking lack of any systematic association between interest rates and the outcome of speculative attacks. The lack of clear empirical evidence on the effects of high interest rates during speculative attacks mirrors the theoretical ambiguities on this issue.

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