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The lira and the pound in the 1992 currency crisis: Fundamentals or speculation?

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  • Michele Fratianni
  • Michael Artis

Abstract

The prevalent explanation of the Exchange Rate Mechanism (ERM) currency crisis of September, 1992 is that myopic speculation prevailed over the “fundamentals.” Our paper explores the reasons why the Italian lira and the U.K. pound were attacked and, subsequently, forced out of the ERM. The crisis was sparked by a common awareness that political unification and the commitment to monetary union had petered out in the summer of 1992, leaving the field open to speculators to pick countries with the weakest fundamentals (Italy) or with policy makers who feared jeopardizing an economic recovery by keeping the currency in the ERM (the U.K.). Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Michele Fratianni & Michael Artis, 1996. "The lira and the pound in the 1992 currency crisis: Fundamentals or speculation?," Open Economies Review, Springer, vol. 7(1), pages 573-589, March.
  • Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:573-589 DOI: 10.1007/BF01886214
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    References listed on IDEAS

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    1. Lars E. O. Svensson, 1991. "The Simplest Test of Target Zone Credibility," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 655-665, September.
    2. repec:nsr:niesrd:58 is not listed on IDEAS
    3. Artis, Michael J, et al, 1995. "Turning Point Prediction for the UK Using CSO Leading Indicators," Oxford Economic Papers, Oxford University Press, vol. 47(3), pages 397-417, July.
    4. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
    5. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 173-241.
    6. Giavazzi, Francesco & Spaventa, Luigi, 1990. "The `New' EMS," CEPR Discussion Papers 369, C.E.P.R. Discussion Papers.
    7. Rose, Andrew K. & Svensson, Lars E. O., 1994. "European exchange rate credibility before the fall," European Economic Review, Elsevier, pages 1185-1216.
    8. Fratianni, M. & Von Hagen, J. & Waller, C., 1992. "The Maastricht Way to EMU," Princeton Studies in International Economics 187, International Economics Section, Departement of Economics Princeton University,.
    9. 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.
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    Citations

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    Cited by:

    1. Fratianni Michele, 2012. "150 years of Italian political unity and economic dualism: An Introduction," Rivista italiana degli economisti, Società editrice il Mulino, pages 335-346.
    2. Rana Ejaz Ali Khan & Muhammad Ali Raza, 2016. "Determinants of malnutrition in Indian children: new evidence from IDHS through CIAF," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(1), pages 299-316, January.
    3. John Ryan, 2009. "China and the Global Roles of Currencies," Working Papers 2009.8, International Network for Economic Research - INFER.
    4. Woo, Kai-Yin, 1999. "Cointegration analysis of the intensity of the ERM currencies under the European Monetary System," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(4), pages 393-405, November.
    5. Kobayashi, Teruyoshi, 2005. "A model of monetary unification under asymmetric information," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 1-15.
    6. Amato, Amedeo & Tronzano, Marco, 2000. "Fiscal policy, debt management and exchange rate credibility: Lessons from the recent Italian experience," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 921-943, June.

    More about this item

    Keywords

    EMS; currency speculation; credibility; F31; F33; C12;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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