Exchange Market Pressures and Speculative Capital Flows in Selected European Countries

IMF Working Papers, February 1, 1994

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Exchange Market Pressures and Speculative Capital Flows in Selected European Countries

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Bibliographic details

• Authors: Ceyla Pazarbasioglu, Inci Ötker
• Published: February 1, 1994
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451921571.001

Research objective and methodology

• Estimates a speculative attack model of currency crises to identify the roles of macroeconomic fundamentals and speculative market pressures in the recent crisis, as well as earlier devaluations in adjustable fixed exchange rate systems in the European currency markets.
• Empirical analysis conducted for a sample of five countries: Denmark, Ireland, Spain, Norway, and Sweden.
• Focus on the interaction between foreign exchange market tensions and the constraints of maintaining fixed exchange rates.

Key findings

• Both economic fundamentals and speculative factors have a significant influence on the probability of devaluations.
• The recent experience in the European foreign exchange markets suggests that the latest realignments are mainly the result of foreign exchange market tensions amidst the growing conflict between the needs of the domestic economies and the policies needed to maintain fixed exchange rates.
• Regardless of the source of the deterioration in economic conditions, market participants perceived the existing parities of the currencies in these five countries as inconsistent with their underlying economic fundamentals, thus effectively bringing about either a realignment or a modification of the exchange arrangement.

Country coverage and topical scope

• Countries analyzed: Denmark, Ireland, Spain, Norway, Sweden.
• Subjects addressed: Conventional peg, Currencies, Currency markets, Exchange rate arrangements, Exchange rates, Financial markets, Foreign exchange, International reserves, Money.
• Keywords included in the analysis: adjustable peg, basket index, central bank, Conventional peg, crisis model, Currencies, currency float, Currency markets, deutsche mark, devaluation probability, ERM currency, Europe, Exchange rate arrangements, Exchange rates, interest rate, Italian lira, Norwegian krone, price level, shadow exchange rate, Swedish krona, WP.

Publication and document specifics

• Authors: Ceyla Pazarbasioglu, Inci Ötker
• Date: February 1, 1994
• Pages: 72
• Volume: 1994
• Issue: 021
• Series: Working Paper No. 1994/021
• DOI: https://doi.org/10.5089/9781451921571.001
• Stock No: WPIEA0211994
• ISBN: 9781451921571
• ISSN: 1018-5941

Source: IMF Working Papers — "Exchange Market Pressures and Speculative Capital Flows in Selected European Countries" by Ceyla Pazarbasioglu and Inci Ötker, February 1, 1994.