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Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis

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  • Pompeo Della Posta

    (Dipartimento di Economia e Management, Università di Pisa, Via Ridolfi, 10 56124 Pisa, Italy)

Abstract

The recent euro area crisis shows some similarities with the fixed exchange rate crisis that affected the European Monetary System in 1992–93. I argue that the theoretical framework to be used in order to analyze them should also be similar. As a matter of fact, in both cases, the point of view of the government (that compares costs and benefits of its action) should be considered together with the point of view of speculators, who look at the state of the economic fundamentals in order to decide whether to launch an attack or not. This allows to represent and to interpret, among other things, both the initial “honeymoon” years of EMU and the recent euro area crisis.

Suggested Citation

  • Pompeo Della Posta, 2016. "Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 16(3), pages 459-478, September.
    • Handle: RePEc:wsi:gejxxx:v:16:y:2016:i:03:n:gej-2015-0063
    DOI: 10.1515/GEJ-2015-0063
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    Citations

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    Cited by:

    1. Della Posta, Pompeo, 2021. "Government size and speculative attacks on public debt," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 79-89.
    2. Della Posta, Pompeo, 2016. "Currency and external debt crises: A unifying framework," Journal of Policy Modeling, Elsevier, vol. 38(4), pages 723-736.
    3. Pompeo Della Posta, 2018. "Fiscal austerity and monetary easing: which one is to be praised for ending the euro area crisis?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 15(1), pages 165-189, June.
    4. Della Posta, Pompeo, 2018. "A model of currency crises with heterogeneous market beliefs," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 182-195.
    5. Pompeo Della Posta & Enrico Marelli & Marcello Signorelli, 2020. "A market‐financed and growth‐enhancing investment plan for the euro area," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 604-632, July.

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