POLI 445 Lecture Notes - Lecture 17: Currency Crisis, Thai Baht, 1997 Asian Financial Crisis
2 Jan 2020
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Possible impact of derivatives (re: contagion: complexity of choice, one of things that already happening is creation of hedge funds and hedging, hedging is some form insurance can be made easier, putting usd and cad into account. If one lowers the other raises: derivatives refer to a different strategy. The idea that you can diversify your investment across whole bunch of products, which are not linked, but you can absord fluctuation in different patterns: notion was, you can do things: i mainly invest in oil in alaska. Psychological elements of crises hard to model: how are you supposed to prevent entering a crisis, taking just not messaging as well as institutional measures, hardest peg; currency board. Replacing central bank with a currency board who pegs the currency and regulates it. Krugman: pure floating is real answer for currency crises: do not peg your currency and follow free floating currency regime. Mexico decided to peg its currency to usd.
