Can someone pleae explain the following in more detail. Struggling to grasp it.
In the period leading up to a currency crisis the following will happen:
FX reserves Decrease
Broad money growth in nominal and real terms will increase
Real exchange rate will be substantially higher than its mean level during tranquil periods
I am a little unclear on all 3, especially 2 & 3. Why would money growth increase during the lead up to a crisis?
I believe money growth is synonymous with excessive money printing?
Higher exchange rate = depreciating currency?
It all sounds familiar yet mysterious at the same time.
Not sure but I would choose
- I believe that “hot money” rapidly increased before crisis. Speculative money caused by bubbles on financial and real estates market.
1 is not because the trend ahead crisis should be opposite, FX reserves have been rapidly increased
@ Flashback, leading up to a currency crisis, FX reserves decrease not increase.
Economics is all a bit fuzzy. I’ll take a couple points on Triangular Arb and Mundell Flemming and move on… lol
Sounds a lot like China right now