IS IT POSSIBLE TO AVOID SPECULATIVE BALANCE OF PAYMENTS CRISES

To be made more realistic, the balance of payments crisis model has to be extended in several directions: introduction of interest paying assets and possibility for the authorities to modify interest rates: existence of speculators aiming at making capital gains and not only at protecting themselves from capital losses due to exchange rate depreciations; intervention of non-rational investors. Once these extensions have been incorporated into the model, one can examine in which cases and using which policies balance or payments crisis can be avoided. We pay a special attention to the case of countries which don't suffer from a structural decline in competitiveness, but which, as recent events have shown, can be affected by a speculative attack on their currency.