Contagious speculative attacks
During the European exchange market turmoil in 1992-3 it was evident that speculative attacks tended to spread across currencies. Using a two-country version of the model developed by Flood and Garber (1984) we show how a speculative attack against one currency may accelerate the `warranted' collapse of a second parity. More important, even if the parity of the second currency is viable in the absence of a collapse of the first one, it might be subjected to a speculative attack if the reserves available to defend the parity are `small'.
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References listed on IDEAS
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- Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
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NBER Working Papers
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in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 18, pages 917-977
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- Smaghi, L.B. & Area, C., 1993. "Rating the EC as an Optimal Currency Area," Papers 187, Banca Italia - Servizio di Studi.
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