Skip to main content

Reverse Speculative Attacks

Staff Report 528 | Published May 24, 2016

Download PDF


Manuel Amador Monetary Advisor
Javier Bianchi Monetary Advisor
Luigi Bocola Stanford University and NBER
Fabrizio Perri Assistant Director and Monetary Advisor
Reverse Speculative Attacks


In January 2015, in the face of sustained capital inflows, the Swiss National Bank abandoned the floor for the Swiss Franc against the Euro, a decision which led to the appreciation of the Swiss Franc. The objective of this paper is to present a simple framework that helps to better understand the timing of this episode, which we label a “reverse speculative attack". We model a central bank which wishes to maintain a peg, and responds to increases in demand for domestic currency by expanding its balance sheet. In contrast to the classic speculative attacks, which are triggered by the depletion of foreign assets, reverse attacks are triggered by the concern of future balance sheet losses. Our key result is that the interaction between the desire to maintain the peg and the concern about future losses, can lead the central bank to first accumulate a large amount of reserves, and then to abandon the peg, just as we have observed in the Swiss case.

Published in: _Journal of Economic Dynamics and Control_ (Vol. 72, November 2016, pp. 125-137)