The timing of exchange rate collapse

Recent episodes of exchange rate collapse have renewed interest in models o f speculative attacks. These episodes have been considered by some observer s to be inconsistent with "fundamentals" models of attack since there was n o prolonged period of policy misalignment and declining reserves, as requir ed by such models. This paper develops a fundamentals model in which collap se is instantaneous at the time of unexpected policy change and/or a change in the expectations of future policy, even for a reserve abundant country. (C) 2000 Elsevier Science Ltd. All rights reserved. JEL classification: F3 1; F33; F42; E31; E52; E62.