Louise Allsopp

A Model to Explain the Duration of a Currency Crisis

There are two main schools of thought which seek to explain currency crises: fundamentalist theories (Krugman P. 1979) and speculative theories (Obstfeld M. 1986). However, neither of these approaches considers the duration of a currency crisis. I explain the duration of a crisis in terms of a war of attrition model. Having set up the basic framework, I consider the impact of a change in the parameter values on a governments optimal time of concession. I them introduce asymmetric post-stabilization utilities into the framework. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.

Common Knowledge and the Value of Defending a Fixed Exchange Rate

Based on a framework originally developed by Morris and Shin (1995), this model shows how a currency crisis may be triggered by a lack of common knowledge regarding government type. Speculators receive noisy differential information concerning the value a government places on maintaining an exchange rate parity. When this value falls in a particular region, the government will abandon the peg if a sufficient number of speculators sell their currency. However, it will maintain the peg if no attack is launched. This paper shows that, in this region, it is always optimal for the speculators to attack the currency thereby forcing a devaluation.

Purchasing Power Parity and the Asian Financial Crisis

Purchasing power parity (PPP) literature is now vast with literally hundreds of papers offering tests for PPP across a large number of countries. However, despite all the elaborate techniques employed, very little explanation is given as to why PPP is so relevant in policy making. This article provides a basic understanding of PPP and shows why it is considered so important when making policy choices. The discussion also briefly examines how this relates to the Asian economies. Primarily, these economies have been subject to intense scrutiny following the 1997 crisis, particularly with regard to their choice of exchange rate regime and possible monetary unification. The findings of the paper suggests that the PPP has had mixed results in predicting current account difficulties and liquidity crises, such as that experienced in Asia. However, the paper also argues that it still can form an integral part of an ‘early warning system’ designed to foresee economic crisis within a country.

Currency attacks, information externalities and search

The currency crisis literature now comprises three main schools of thought; first‐generation models consider the depletion of foreign exchange reserves as a consequence of incompatible exchange rate and monetary policies. Second‐generation models are based on speculative theories whereby the belief of investors that monetary policy will be modified as a result of an attack makes the attack possible. Third‐generation models have been designed in an attempt to explain the nature of the Asian crises of 1997/1998. Each school of thought considers the nature of a speculative attack. However, this model uses a search framework to explain the timing of an attack in terms of an information externality in the foreign exchange market. It then assesses the efficacy of a Tobin tax in delaying and thereby possibly preventing such a crisis.

Common knowledge and the value of defending a fixed exchange rate––an explanation of a currency crisis

Based on a framework originally developed by Morris and Shin (1995), this model shows how a currency crisis may be triggered by a lack of common knowledge regarding government type. Speculators receive noisy differential information concerning the value a government places on maintaining an exchange rate parity. When this value falls in a particular region, the government will abandon the peg if a sufficient number of speculators sell their currency. However, it will maintain the peg if no attack is launched. This paper shows that, in this region, it is always optimal for the speculators to attack the currency thereby forcing a devaluation.

Flexibility in Assessment - An Evaluation of Student Performance

The purpose of this paper is to highlight an often-neglected area of teaching, namely assessment of student performance. Many courses now incorporate some form of continual assessment to establish the overall student grade. While the percentage weighting given to continual assessment and the final exam may vary, it is usual that all assessment components are compulsory. This paper reports the results for a course in which a flexible assessment technique is used. The student performance in a mid-term test and weekly seminars is potentially worth 30% of the overall grade with a weight of 70% given to the final exam. However, the final exam is then considered in isolation as potentially worth 100% of the assessment. The student is then awarded the higher grade from the two methods of calculation. This approach proved successful for a university course thus highlighting the importance of assessment technique in the education sector.

Testing Different Teaching Techniques in First Year Finance Seminars

The author compares the relative successes of two different teaching techniques in seminars for a first year university course in Finance. This paper tests to see if there is one overriding approach that enables all students to learn effectively in seminars or whether different students benefit from different teaching techniques. An experiment will be carried out on a subset of a first year Finance group in Semester 1, 2001 for five separate fiftyminute sessions. Four groups (i.e. sixty students) will be taught using one teaching technique. The remaining four groups will face an alternative approach. The author will consider the performance of the students in these groups in the light of a personality questionnaire designed to ascertain preferred learning styles. The ultimate goal is to deliver seminars that offer the students the best possible learning environment.