IMF Paper: Balance of payments crises under IT

This IMF Working Paper analyzes a small open economy model under inflation targeting. The Paper shows why such a monetary regime is vulnerable to speculative attacks that take place over a short period rather than instantaneously.

The speed at which the regime collapses, and the extent of reserve losses, are increasing in the central bank's explicit or implicit commitment to intervene in the foreign exchange market. Attacks are therefore ranked, from most to least severe, as follows: Exchange

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