FINANCIAL OPENNESS, SHADOW FLOATING EXCHANGE-RATES AND SPECULATIVE ATTACKS

Both the literature as well as the evidence on speculative attacks in foreign exchange markets provide important lessons for managing an exc hange rare regime. Balance of payments crises, rather than being exoge nous shocks, could well be the equilibrium outcome of maximising behav iour by rational agents faced with a fundamental inconsistency between monetary and exchange rate policies. The longer the delay in bringing about such consistency between monetary, fiscal and exchange rate pol icies, the higher will be the potential costs of an eventual adjustmen t when ultimately faced with the inevitable regime collapse.