Banking Performance and Speculative Attacks Under Asymmetric Information Report as inadecuate




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Abstract

The Asian financial crisis of 1997 evolved through many stages. Although there is a consensus among economists on its -ingredients-, a disagreement still exists about the exact mechanisms. This paper proposes a model explaining the triggering event of the crisis as represented by the abandon of Thailand and Korea of their fixed exchange rate.

The model suggests that an external negative shock to the price of tradable goods can be the detonator of a currency crisis if some ingredients already exist. In this context,I show that the efficiency of the banking system and the speculators-government interaction play crucial roles. Under certain conditions, an efficient banking systemenables the economy to resist to even high magnitudes of the shock, while an inefficient one leads to a currency crisis. In this model, abandoning the fixed parity implies a cost to the government and characterizes its type. Speculators infer the government-s type when deciding to attack the currency. The paper has the following innovation: it shows that a slight variation in speculators- inference precision causes a sudden change in their sentiment, a speculative attack and the abandon of the parity.



Item Type: MPRA Paper -

Original Title: Banking Performance and Speculative Attacks Under Asymmetric Information-

Language: English-

Keywords: Banking, speculative attacks, currency crisis, asymmetric information-

Subjects: F - International Economics > F3 - International Finance > F34 - International Lending and Debt ProblemsF - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital MovementsG - Financial Economics > G1 - General Financial Markets > G15 - International Financial MarketsG - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and RegulationF - International Economics > F3 - International Finance > F31 - Foreign Exchange-





Author: Nabi, Mahmoud Sami

Source: https://mpra.ub.uni-muenchen.de/24515/







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