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Was the French Franc Crisis a Sunspot Equilibrium?

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  • Olivier Jeanne and Paul Masson.

Abstract

This paper examines the extent to which speculation against the French franc in 1992-93 was motivated by the fundamentals or resulted from a sunspot phenomenon. We develop a model of currency crises which encompasses both hypotheses about the origin of speculation. The estimation shows that the model with sunspots not only better tracks the episodes of speculation, but also gives a better account of the relationship between the fundamentals and the devaluation expectations.

Suggested Citation

  • Olivier Jeanne and Paul Masson., 1997. "Was the French Franc Crisis a Sunspot Equilibrium?," Center for International and Development Economics Research (CIDER) Working Papers C97-095, University of California at Berkeley.
    • Handle: RePEc:ucb:calbcd:c97-095
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    Cited by:

    1. Axel A. Weber, 1998. "Sources of Currency Crises: An Empirical Analysis," Working Papers 25, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Barry Eichengreen & Olivier Jeanne, 2000. "Currency Crisis and Unemployment: Sterling in 1931," NBER Chapters, in: Currency Crises, pages 7-43, National Bureau of Economic Research, Inc.
    3. Craine, Roger, 2001. "Dollarization: An Irreversible Decision," Department of Economics, Working Paper Series qt404915zn, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    4. Tudela, Merxe, 2004. "Explaining currency crises: a duration model approach," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 799-816, September.
    5. Jesper Rangvid, 1997. "Deviations from long-run equilibria and probabilities of devaluations: An empirical analysis of Danish realignments," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(3), pages 497-522, September.
    6. Roger Craine, 1999. "Exchange Rate Regime Credibility, the Agency Cost of Capital and Devaluation," International Finance 9902002, University Library of Munich, Germany.
    7. Árvai, Zsófia & Vincze, János, 1998. "Valuták sebezhetősége pénzügyi válságok a kilencvenes években [Vulnerability of currencies financial crises in the nineties]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 509-533.
    8. Roger Craine, 2001. "Dollarization: An Irreversible Decision," International Finance 0103003, University Library of Munich, Germany.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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