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Was the French Franc Crisis a Sunspot Equilibrium?

  • Olivier Jeanne and Paul Masson.

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.

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Paper provided by University of California at Berkeley in its series Center for International and Development Economics Research (CIDER) Working Papers with number C97-095.

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Date of creation: 01 Oct 1997
Date of revision:
Handle: RePEc:ucb:calbcd:c97-095
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  1. Frenkel, Jacob A, 1981. "Flexible Exchange Rates, Prices, and the Role of "News": Lessons from the 1970s," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 665-705, August.
  2. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers 680, UCLA Department of Economics.
  3. Manning, Alan, 1991. "Multiple Equilibria in the British Labour Market: Some Empirical Evidence," CEPR Discussion Papers 540, C.E.P.R. Discussion Papers.
  4. Robert P. Flood & Peter M. Garber, 1981. "Gold monetization and gold discipline," International Finance Discussion Papers 190, Board of Governors of the Federal Reserve System (U.S.).
  5. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, vol. 105(429), pages 510-19, March.
  6. Velasco, Andres, 1996. "Fixed exchange rates: Credibility, flexibility and multiplicity," European Economic Review, Elsevier, vol. 40(3-5), pages 1023-1035, April.
  7. Woodford, Michael, 1987. "Three Questions about Sunspot Equilibria as an Explanation of Economic Fluctuations," American Economic Review, American Economic Association, vol. 77(2), pages 93-98, May.
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