Speculative Attacks, Forward Market Intervention and the Classic Bear Squeeze

December 1, 1997

Preview Citation

Format: Chicago

Subir Lall. Speculative Attacks, Forward Market Intervention and the Classic Bear Squeeze, (USA: International Monetary Fund, 1997) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

A typical strategy used by speculators to launch an attack on a fixed exchange regime is the use of forward markets. Central banks also intervene in forward markets to counter speculation. This paper addresses the question of how an attack is launched on the forward market, and what the optimal policy response to such speculation is in the forward and spot markets. The paper also demonstrates how central banks can impose a bear squeeze on speculators. Recent events in South East Asian currency markets are interpreted within the framework of the model’s predictions.

Subject: Banking, Commercial banks, Currencies, Currency markets, Exchange rate arrangements, Exchange rates, Financial institutions, Financial markets, Foreign exchange, Money

Keywords: Capital loss, Central bank intervention, Commercial banks, Currencies, Currency markets, East Asia, Exchange rate arrangements, Exchange rate crisis, Exchange Rates, Fixed cost, Forward market, Forward market intervention, Forward Markets, Forward rate, Interest rate, Interest rate target, Long position, Market condition, Market corner, Market Corners, Market forward rate, Money stock, South Asia, Speculative Attacks, Spot market, Thai baht, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/164
Stock No:

WPIEA1641997
ISBN:

9781451980202
ISSN:

1018-5941

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