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Models of Currency Crises with Self-fulfilling Features

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  • Obstfeld, Maurice

Abstract

The discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency-market equilibria. After describing an illustrative model in which high unemployment may cause an exchange rate crisis with self-fulfilling features, the paper reviews some other self-reinforcing mechanisms. Recent econometric evidence seems to support the practical importance of these mechanisms.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1315.

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Date of creation: Jan 1996
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Handle: RePEc:cpr:ceprdp:1315

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Keywords: Balance-of-payments Crisis; Fixed Exchange Rate; Multiple Equilibria; Speculative Attack;

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References

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  1. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  2. Willem H. Buiter & Giancarlo Corsetti & Paolo A. Pesenti, 1995. "A Center-Periphery Model of Monetary Coordination and Exchange Rate Crises," NBER Working Papers 5140, National Bureau of Economic Research, Inc.
  3. Bensaid, B.B. & Jeanne, O., 1995. "The Instability of Fixed Exchange Rate Systems when Raising the Nominal Interest Rate is Costly," Papers 9536, Tilburg - Center for Economic Research.
  4. Rose, Andrew K & Svensson, Lars E O, 1993. "European Exchange Rate Credibility Before the Fall," CEPR Discussion Papers 852, C.E.P.R. Discussion Papers.
  5. Obstfeld, Maurice, 1997. "Destabilizing effects of exchange-rate escape clauses," Journal of International Economics, Elsevier, vol. 43(1-2), pages 61-77, August.
  6. Calvo, Sara & Reinhart, Carmen, 1996. "Capital flows to Latin America : Is there evidence of contagion effects?," Policy Research Working Paper Series 1619, The World Bank.
  7. Velasco, Andres, 1987. "Financial crises and balance of payments crises : A simple model of the southern cone experience," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 263-283, October.
  8. Andersen, Torben M, 1994. "Shocks and the Viability of a Fixed Exchange Rate Commitment," CEPR Discussion Papers 969, C.E.P.R. Discussion Papers.
  9. de Kock, Gabriel & Grilli, Vittorio, 1993. "Fiscal Policies and the Choice of Exchange Rate Regime," Economic Journal, Royal Economic Society, vol. 103(417), pages 347-58, March.
  10. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
  11. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  12. Gerlach, Stefan & Smets, Frank, 1995. "Contagious speculative attacks," European Journal of Political Economy, Elsevier, vol. 11(1), pages 45-63, March.
  13. Barry Eichengreen, Andrew K. Rose, and Charles Wyplosz., 1995. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C95-046, University of California at Berkeley.
  14. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  15. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, vol. 105(429), pages 510-19, March.
  16. Drazen, Allan & Masson, Paul R, 1994. "Credibility of Policies versus Credibility of Policymakers," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 735-54, August.
  17. Guillermo A. Calvo, 1995. "Varieties of Capital-Market Crises," IDB Publications 5721, Inter-American Development Bank.
  18. Chen, Zhaohui, 1995. "Speculative Market Structure and the Collapse of an Exchange Rate Mechanism," CEPR Discussion Papers 1164, C.E.P.R. Discussion Papers.
  19. Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 571-82, May.
  20. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  21. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  22. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  23. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Le triangle d'incompatibilité de Mundell: l'impossible trinité
    by contact@captaineconomics.fr (Le Captain') in Captain Economics on 2012-09-26 08:10:43
  2. Comment une attaque spéculative peut faire s'écrouler un régime de change ?
    by contact@captaineconomics.fr (Le Captain') in Captain Economics on 2012-10-17 08:31:50
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