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.

Walter Bagehot’s Lombard Street: An Interpretation

Walter Bagehot’s contribution to macroeconomics in Lombard Street is misunderstood and underappreciated. To remedy this, I reinterpret his work, including his famous policy “rules,” by piecing together his larger theoretical framework. That framework incorporates: (1) a “Lombard Street” economy, consisting of a permissive lending system, capitalists in need of credit, and a financial center which attracts large inflows of foreign capital; (2) a rigid policy regime built on a gold standard; and (3) a central bank with a dual objective of keeping the nation’s currency convertible into gold and backstopping a crisis-prone economy. Bagehot argues that an economy with this structure is vulnerable to two distinct crises. The first is a speculative attack on the gold standard by foreigners, as they seek to convert their money into gold. And the second is a run on the credit system by nervous participants. Guided by the “right principles,” Bagehot insists that an active central bank can both preserve the gold standard and prevent recurrent financial panics. JEL Classifications: B31, E58, N23

Lessons for Other Developing Countries from Recent Asian Financial Crisis

The Asian financial crisis was triggered by the speculative attack on the dpmestic currincies.

Using genetic algorithm in dynamic model of speculative attack

Evolution of speculative attack models shows certain progress in developing the idea of the role of expectations in the crisis mechanism. Obstfeld (1996) defines expectations as fully exogenous. Morris and Shin (1998) treat the expectations as endogenous (with respect to noise), not devoting too much attention to information structure of the foreign exchange market. Dynamic approach proposed by Angeletos, Hellwig and Pavan (2006) offers more sophisticated assumption about learning process. It tries to reflect time-variant and complex nature of information. However, this model ignores many important details like a Central Bank cost function. Genetic algorithm allows to avoid problems connected with incorporating information and expectations into agent decision-making process to an extent. There are some similarities between the evolution in Nature and currency market performance. In our paper an assumption about rational agent behaviour in the efficient market is criticised and we present our version of the dynamic model of a speculative attack, in which we use a genetic algorithm (GA) to define decision-making process of the currency market agents. The results of our simulation seem to be in line with the theory and intuition. An advantage of our model is that it reflects reality in a quite complex way, i.e. level of noise changes in time (decreasing), there are different states of fundamentals (with “more sensitive” upper part of the scale), the number of inflowing agents can be low or high (due to different globalization phases, different capital flow phases, different uncertainty levels).

The Dynamics of Fundamentals in Currency Crisis in Indonesia and Malaysia

Kesan makroekonomi fundamental ke atas tekanan pasaran (MP) ditafsir menggunakan model generasi ketiga berasaskan jangkaan ‘adaptif’ Dusenberry. Hasil kajian ini tekal dengan anggapan umum bahawa fundamental makroekonomi yang lemah telah mengakibatkan serangan ke atas matawang negara–negara Asia. Walau bagaimanapun, variabel makroekonomi serta dinamik variabel tersebut yang membawa kepada krisis agak berbeza di Malaysia dan Indonesia. Serangan spekulatif terhadap rupiah berlaku dalam keadaan makroekonomi yang lemah manakala tekanan terhadap Ringgit Malaysia dikaitkan dengan pertumbuhan kredit, defisit fiskal dan kadar pertukaran benar. Kesimpulannya, fundamental yang mempengaruhi jangkaan pasaran dan seterusnya tekanan pasaran (MP) mungkin sama tetapi dinamik yang membentuk jangkaan pasaran amat berbeza. Oleh yang demikian, anggapan bahawa ekonomi Asian mempunyai ciri–ciri yang sama sehingga mengakibatkan krisis matawang 1997 mungkin tidak benar. Kata kunci: krisis matawang; Indonesia; Malaysia; fundamental The impact of selected macroeconomic fundamentals on the market pressure (MP) is assessed using the third generation models based on ‘Dusenberry’ adaptive expectations. The findings are consistent with the general belief that weak macroeconomic fundamentals had triggered the speculative attacks against the Asian currencies. However, the macroeconomic variables and their dynamics that set the groundwork for a currency crisis differ considerably in Malaysia and Indonesia. A speculative attack against the Rupiah occurred in a generalized state of macroeconomic weakness while domestic credit growth, the fiscal balances–GDP ratio and the real exchange rate exerted strong influence on the exchange market pressure for Malaysia. In conclusion, while there are some common fundamentals matter for shifting market expectations and hence, market pressure in both countries, the dynamics that formed market expectations are divergent. Therefore, the belief that the Asian economies had the same characteristics that triggered the currency crisis in 1997 may be incorrect. Key words: currency crisis; Indonesia; Malaysia; fundamentals