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Speculative Attacks, Forward Market Intervention and the Classic Bear Squeeze
Author: Mr. Subir Lall
Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 164
Language:
English
Publication Date:
01 Dec 1997
DOI:
https://doi.org/10.5089/9781451980202.001
ISBN:
9781451980202
ISSN:
1018-5941
Pages:
37
Keywords:
WP; spot market; central bank intervention; interest rate; forward market; Speculative Attacks; Forward Markets; Exchange Rates; Market Corners; forward rate; long position; forward market intervention; Thai baht; capital loss; exchange rate crisis; interest rate target; market condition; fixed cost; market forward rate; money stock; market corner; Currencies; Currency markets; Commercial banks; Exchange rate arrangements; East Asia; South Asia
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.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund