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Why clashes between internal and external stability goals end in currency crises, 1797–1994

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  • Michael Bordo
  • Anna Schwartz

Abstract

We argue that recent currency crises reflect clashes between fundamentals and pegged exchange rates, just as did crises in the past. We reject the view that crises reflect self-fulfilling prophecies that are not closely related to measured fundamentals. Doubts about the timing of a market attack on a currency are less important than the fact that it is bound to happen if a government's policies are inconsistent with pegged exchange rates. We base these conclusions on a review of currency crises in the historical record under metallic monetary regimes and of crises post-World War II under Bretton Woods, and since, in European and Latin American pegged exchange rate regimes. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Michael Bordo & Anna Schwartz, 1996. "Why clashes between internal and external stability goals end in currency crises, 1797–1994," Open Economies Review, Springer, vol. 7(1), pages 437-468, March.
    • Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:437-468
    DOI: 10.1007/BF01886207
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