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Models of Currency Crises with Self-Fulfilling Features

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  • Maurice Obstfeld

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5285.

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Date of creation: Oct 1995
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Publication status: published as European Economic Review, vol. 40, pp. 1037-1047, 1996.
Handle: RePEc:nbr:nberwo:5285

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  1. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1995. "Speculative attacks on pegged exchange rates: an empirical exploration with special reference to the European Monetary System," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 95-04, Federal Reserve Bank of San Francisco.
  2. Maurice Obstfeld, 1991. "Destabilizing Effects of Exchange-Rate Escape Clauses," NBER Working Papers 3603, National Bureau of Economic Research, Inc.
  3. Carmen M. Reinhart & Sara Calvo, 1996. "Capital Flows to Latin America: Is There Evidence of Contagion Effects?," Peterson Institute Press: Chapters, Peterson Institute for International Economics, in: Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), Private Capital Flows to Emerging Markets After the Mexican Crisis, pages 151-171 Peterson Institute for International Economics.
  4. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(3), pages 488-511, June.
  5. 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.
  6. de Kock, Gabriel & Grilli, Vittorio, 1993. "Fiscal Policies and the Choice of Exchange Rate Regime," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(417), pages 347-58, March.
  7. Chen, Zhaohui, 1995. "Speculative Market Structure and the Collapse of an Exchange Rate Mechanism," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1164, C.E.P.R. Discussion Papers.
  8. Andersen, Torben M, 1994. "Shocks and the Viability of a Fixed Exchange Rate Commitment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 969, C.E.P.R. Discussion Papers.
  9. Drazen, Allan & Masson, Paul R, 1994. "Credibility of Policies versus Credibility of Policymakers," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 735-54, August.
  10. Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(430), pages 571-82, May.
  11. Bensaid, Bernard & Jeanne, Olivier, 1997. "The instability of fixed exchange rate systems when raising the nominal interest rate is costly," European Economic Review, Elsevier, Elsevier, vol. 41(8), pages 1461-1478, August.
  12. Rose, A.K. & Svensson, L.E.O., 1993. "European Exchange Rate Credibility Before the Fall," Papers, Stockholm - International Economic Studies 542, Stockholm - International Economic Studies.
  13. W.H. Buiter & G Corsetti & P Pesenti, 1995. "A Center-Periphery Model of Monetary Coordination and Exchange Rate Crises," CEP Discussion Papers dp0246, Centre for Economic Performance, LSE.
  14. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  15. Velasco, Andres, 1987. "Financial crises and balance of payments crises : A simple model of the southern cone experience," Journal of Development Economics, Elsevier, Elsevier, vol. 27(1-2), pages 263-283, October.
  16. Guillermo A. Calvo, 1995. "Varieties of Capital-Market Crises," Research Department Publications, Inter-American Development Bank, Research Department 4008, Inter-American Development Bank, Research Department.
  17. Stefan Gerlach & Frank Smets, 1994. "Contagious speculative attacks," BIS Working Papers 22, Bank for International Settlements.
  18. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  19. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
  20. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  21. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  22. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(429), pages 510-19, March.
  23. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, Elsevier, vol. 17(1-2), pages 1-13, August.
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  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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