Why Clashes Between Internal and External Stability Goals End in Currency Crises, 1797-1994
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.
Year of publication: |
1996-08
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Authors: | Bordo, Michael David ; Schwartz, Anna J. |
Institutions: | National Bureau of Economic Research (NBER) |
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