IDEAS home Printed from https://ideas.repec.org/p/yor/yorken/94-2.html
   My bibliography  Save this paper

A Model of the ERM Crisis

Author

Listed:
  • F Gulcin Ozkan
  • Alan Sutherland

Abstract

Existing models of speculative attacks and balance of payments crises do not provide a good explanation for the breakdown of the ERM in 1992/93. This paper presents an alternative model which captures some of the important features of that period. The switch from a fixed to a floating rate regime is triggered, in this model, by an optimising government which wants to loosen monetary policy and boost aggregate demand. Agents in the foreign exchange market know the government's objective function and therefore build expectations of a regime switch into interest differentials. The resulting rise in interest rates affects the government's decision to switch regime (via the effect of interest rates on aggregate demand). It is shown that this interaction between private sector expectations and government preferences can imply a breakdown of the fixed rate sooner than the government would like.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • F Gulcin Ozkan & Alan Sutherland, "undated". "A Model of the ERM Crisis," Discussion Papers 94/2, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:94/2
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:yor:yorken:94/2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Paul Hodgson (email available below). General contact details of provider: https://edirc.repec.org/data/deyoruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.