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Article: A Theory of Currency Board with Irrevocable Commitments

TitleA Theory of Currency Board with Irrevocable Commitments
Authors
KeywordsCurrency board
Hong Kong
Argentina
Iirrevocable reserve commitment
Put option
Issue Date2003
PublisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/IRFI
Citation
International Review of Finance, 2003, v. 4 n. 3-4, p. 125-170 How to Cite?
AbstractCurrency boards are subject to runs if the foreign currency reserve is insufficient to back the convertible money supply. We construct a simple model and show how pre-specified optimal reserve commitments can avert currency board runs. If there exists asymmetric information on the government's resolve, the government can also use commitments as a costly signal to induce a separating equilibrium. The model can be adapted to analyze other hard-fixed exchange rate systems such as dollarizations and monetary unions. We illustrate the implications of our model in terms of the recent success in Hong Kong and possible remedies for Argentina.
Persistent Identifierhttp://hdl.handle.net/10722/85563
ISSN
2015 Impact Factor: 0.595
2015 SCImago Journal Rankings: 1.493
SSRN

 

DC FieldValueLanguage
dc.contributor.authorChan, AWHen_HK
dc.contributor.authorChen, NFen_HK
dc.date.accessioned2010-09-06T09:06:37Z-
dc.date.available2010-09-06T09:06:37Z-
dc.date.issued2003en_HK
dc.identifier.citationInternational Review of Finance, 2003, v. 4 n. 3-4, p. 125-170en_HK
dc.identifier.issn1369-412Xen_HK
dc.identifier.urihttp://hdl.handle.net/10722/85563-
dc.description.abstractCurrency boards are subject to runs if the foreign currency reserve is insufficient to back the convertible money supply. We construct a simple model and show how pre-specified optimal reserve commitments can avert currency board runs. If there exists asymmetric information on the government's resolve, the government can also use commitments as a costly signal to induce a separating equilibrium. The model can be adapted to analyze other hard-fixed exchange rate systems such as dollarizations and monetary unions. We illustrate the implications of our model in terms of the recent success in Hong Kong and possible remedies for Argentina.-
dc.languageengen_HK
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/IRFIen_HK
dc.relation.ispartofInternational Review of Financeen_HK
dc.rightsThe definitive version is available at www.blackwell-synergy.comen_HK
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectCurrency board-
dc.subjectHong Kong-
dc.subjectArgentina-
dc.subjectIirrevocable reserve commitment-
dc.subjectPut option-
dc.titleA Theory of Currency Board with Irrevocable Commitmentsen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=1369-412X&volume=4: 3-4&spage=125&epage=170&date=2003&atitle=A+Theory+of+Currency+Board+with+Irrevocable+Commitmentsen_HK
dc.identifier.emailChan, AWH: alexchan@econ.hku.hken_HK
dc.identifier.authorityChan, AWH=rp01043en_HK
dc.description.naturepreprint-
dc.identifier.doi10.1111/j.1468-2443.2005.00045.x-
dc.identifier.hkuros103775en_HK
dc.identifier.volume4-
dc.identifier.issue3-4-
dc.identifier.spage125-
dc.identifier.epage170-
dc.publisher.placeUnited Kingdom-
dc.identifier.ssrn300770-

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