Cover IMF Working Papers
Buy Book in Print
Expected Devaluation and Economic Fundamentals
Author:
Mr. Alun H. Thomas
Search for other papers by Mr. Alun H. Thomas in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 1993: Issue 083
Language:
English
Publication Date:
01 Nov 1993
DOI:
https://doi.org/10.5089/9781451954517.001
ISBN:
9781451954517
ISSN:
1018-5941
Pages:
40
Keywords:
WP; foreign exchange; expected devaluation; devaluation risk; mean reversion; Italian lira; depreciation ceteris paribus; deutsche mark; Exchange rates; Currencies; Exchange rate adjustments; Depreciation; Unemployment rate
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.5 MB) Download Epub
Recent incidents of exchange rate collapse have provoked interest in the extent to which such events are determined by economic fundamentals. This paper considers whether interest rate differentials are appropriate measures of the risk of devaluation and whether this measure of devaluation risk reflects the movements of variables which capture internal and external balance. The paper finds that interest rate differentials reflect devaluation risk but that movements in fundamental variables have only a weak effect on devaluation risk in France and Italy. The most significant influence on devaluation risk is the position of the currency in its band in that the lower is the exchange value of a currency within the band, the greater is the perceived risk of devaluation.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund