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Why Clashes Between Internal and External Stability Goals End in Currency Crises, 1797-1994

  • Michael D. Bordo
  • Anna J. Schwartz

We argue that recent currency crises reflect clashes between fundamentals and pegged exchange rates, just as did crises in the past. We reject the view that crises reflect self-fulfilling prophecies that are not closely related to measured fundamentals. Doubts about the timing of a market attack on a currency are less important than the fact that it is bound to happen if a government's policies are inconsistent with pegged exchange rates. We base these conclusions on a review of currency crises in the historical record under metallic monetary regimes and of crises post-World War II under Bretton Woods, and since, in European and Latin American pegged exchange rate regimes.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5710.

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Date of creation: Aug 1996
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Publication status: published as Open Economies Review, Vol. 7 pp. 437-468, December 1996
Handle: RePEc:nbr:nberwo:5710
Note: ME IFM
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  1. Ozkan, F Gulcin & Sutherland, Alan, 1994. "A Model of the ERM Crisis," CEPR Discussion Papers 879, C.E.P.R. Discussion Papers.
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