A new paper titled “Triangular Speculative Attacks”, authored by our researcher David Alaminos and published in Open Economies Review, introduces the Triangular Speculative Attacks Model (TSAM), a novel framework that advances the field of international macro-financial analysis by explaining how speculative shocks propagate across foreign exchange markets through intermediary currencies.

Unlike traditional approaches that analyze speculative attacks as isolated bilateral events, TSAM captures the triangular structure of global FX systems, where financial stress originating in one currency can spread indirectly through a dominant intermediary currency to affect a third. The model integrates agent-based simulations with econometric validation to represent the interaction between microstructural trading dynamics and macro-financial contagion.

Using an Agent-Based Modeling framework with heterogeneous traders such as market makers, chartists, contrarians, and arbitrageurs, together with econometric tools like Vector Error Correction Models, Granger causality tests, and impulse-response functions, the paper analyzes the 2018 Argentine peso crisis as an empirical case study. The findings show that speculative shocks to the ARS/USD exchange rate generated persistent and asymmetric contagion toward the USD/BRL and ARS/BRL pairs. The U.S. dollar initially acted as a temporary buffer but subsequently transmitted volatility to Brazil, confirming the triangular transmission mechanism.

The results reveal long-run cointegration among the three exchange rates and directional causality from ARS/USD toward the other pairs. Variance decomposition indicates that the Brazilian real became increasingly sensitive to shocks from Argentina over time, while rolling correlations display structural breaks after the attack, signaling evolving contagion patterns and changing macro-financial linkages.

The TSAM contributes conceptually by bridging international macro-financial theory and microstructure dynamics, explicitly incorporating cross-currency arbitrage, investor heterogeneity, and nonlinear feedback mechanisms within a unified framework. It captures emergent properties such as volatility clustering, herding, and network-driven capital flows, providing a dynamic extension to first- and second-generation speculative attack models.

From a policy perspective, TSAM offers a valuable tool for central banks, regulators, and international institutions to detect and simulate the spread of speculative pressures across currencies. It supports the design of early-warning systems, macroprudential regulation, and reserve management strategies aimed at mitigating contagion and safeguarding financial stability in interconnected currency networks.

Overall, this study represents the first formal and empirically validated modeling of triangular speculative contagion within the framework of international macro-finance, offering both theoretical innovation and practical findings into how modern speculative pressures evolve and transmit across global markets.

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