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

  • Michele Fratianni
  • Michael Artis

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

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File URL: http://hdl.handle.net/10.1007/BF01886214
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 7 (1996)
Issue (Month): 1 (March)
Pages: 573-589

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Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:573-589
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  1. Rose, Andrew K. & Svensson, Lars E. O., 1994. "European exchange rate credibility before the fall," European Economic Review, Elsevier, vol. 38(6), pages 1185-1216, June.
  2. Francesco Giavazzi & Luigi Spaventa, 1990. "The "New" EMS," Working Papers 86, Dipartimento Scienze Economiche, Universita' di Bologna.
  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. Svensson, L.E.O., 1990. "The Simplest Test of Target Zone Credibility," Papers 469, Stockholm - International Economic Studies.
  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. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
  7. 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,.
  8. repec:nsr:niesrd:58 is not listed on IDEAS
  9. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
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