Neural Networks for Estimating Speculative Attacks Models

Currency crises have been analyzed and modeled over the last few decades. These currency crises develop mainly due to a balance of payments crisis, and in many cases, these crises lead to speculative attacks against the price of the currency. Despite the popularity of these models, they are currently shown as models with low estimation precision. In the present study, estimates are made with first- and second-generation speculative attack models using neural network methods. The results conclude that the Quantum-Inspired Neural Network and Deep Neural Decision Trees methodologies are shown to be the most accurate, with results around 90% accuracy. These results exceed the estimates made with Ordinary Least Squares, the usual estimation method for speculative attack models. In addition, the time required for the estimation is less for neural network methods than for Ordinary Least Squares. These results can be of great importance for public and financial institutions when anticipating speculative pressures on currencies that are in price crisis in the markets.

Is the CFA Franc Prone to Speculative Attacks or a Contagion Effect: A Stochastic-Markov Transition Analysis for Cameroon

The study employs the Markovian processs on annual nominal effective exchange rate of CFA Franc spanning 1975 to 2017 to examine whether the CFA franc is prone to speculative attacks or a contagion effect. The findings reveal that the expected duration for the CFA Franc to be undervalued is twice higher than for it to be overvalued. This validates the contagion effect of a Euro crisis on the CFA Franc. Though the level of growth increased significantly during the undervaluation era, the level of uncertainty remains equally high. The findings confirm that exchange rate devaluation influences the expectations of private agents, which in turn triggers an attack on the domestic currency.

INTEREST RATE TARGETS AND SPECULATIVE ATTACKS ON PUBLIC DEBT

The application of exchange rate target zones modeling to interest rates allows interpreting the puzzles that emerged with the public debt euro area crisis, namely the nonlinear behavior of the interest rates and the fact that some stand-alone countries, not belonging to the euro area, have not been subject to speculative attacks in spite of equally large public debt-to-gross domestic product (GDP) ratios. As a matter of fact, this model shows that in the case of a noncredible upper threshold for the interest rate (that may be due to both the lack of room for increasing further the required government primary surplus and/or the absence of a monetary authority acting as a lender of last resort), the resulting public debt unsustainability determines an interest rate nonlinearity and makes the crisis possible for public debt levels that would be stable in the presence of a credible interest rate target.

Most Speculative Attacks Do Not Succeed: Currency Crises and Currency Crashes

While there has been considerable research on currency crises, relatively little attention has been given to whether they are successful or not. We investigate this question for a set of 32 emerging market economies for the period 1980–2014. In the literature, many different measures of currency crises have been used, but almost all use some variants of exchange market pressure indices that look at changes in exchange rates, international reserves, and often also interest rates. These vary mainly in their specific specifications such as how to weigh the different variables. Therefore, to check the robustness of our results we use six different specifications. A second type of measure is also sometimes used. These focus only on large depreciations of exchange rates. While often called measures of currency crises they are really only measures of currency crashes. We thus take this approach as a measure of successful attacks. Using a wider range of thresholds than studies such as Lavean and Valencia’s, a well-known dataset of different types of financial crises, we still find that the vast majority of speculative attacks are not successful.