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Models of currency crises with self-fulfilling features: A comment

  • Meixing Dai

Much attention has been paid to models of currency crisis with self-fulfilling features and the concept of multiple equilibria developed in the 1990s. They aim at explaining currency crisis without apparent fundamental disequilibrium. They are also useful to render account for currency crisis unpredictability. This paper re-examines an illustrative model of Obstfeld (1996), in which high unemployment may cause an exchange-rate crisis with selffulfilling features. By completing the algebraic demonstration, this paper shows that there are less equilibria than conjectured.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2009-14.

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Date of creation: 2009
Date of revision:
Handle: RePEc:ulp:sbbeta:2009-14
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  1. Jean-Pierre Allegret & Camille Cornand, 2005. "The Pros and Cons of Higher Transparency: The Case of Speculative Attacks," Post-Print halshs-00180086, HAL.
  2. Obstfeld, Maurice, 1996. "Destabilizing Effects of Exchange-Rate Escape Clauses," Department of Economics, Working Paper Series qt15n3p5dt, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Meixing Dai, 2012. "External Constraint and Financial Crises with Balance Sheet Effects," International Economic Journal, Taylor & Francis Journals, vol. 26(4), pages 567-585, March.
  4. Reuven Glick & Ramon Moreno & Mark Spiegel, 2001. "Financial crises in emerging markets," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar.23.
  5. Dai, Meixing, 2008. "Public debt and currency crisis: how central bank opacity can make things bad?," MPRA Paper 13867, University Library of Munich, Germany.
  6. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, vol. 6(4), pages 459-472, November.
  7. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
  8. Sachs, J. & Tornell, A. & Velasco, A., 1996. "The Mexican Peso Crisis: Sudden Death or Death Foretold?," Working Papers 96-20, C.V. Starr Center for Applied Economics, New York University.
  9. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
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