Models of Currency Crises with Self-Fulfilling FeaturesMaurice Obstfeld
NBER Working Paper No. 5285 (Also Reprint No. r2108) The discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency-market equilibria. After describing an illustrative model in which high unemployment may cause an exchange- rate crisis with self-fulfilling features, the paper reviews some other self-reinforcing mechanisms. Recent econometric evidence seems to support the practical importance of these mechanisms. Published: European Economic Review, vol. 40, pp. 1037-1047, 1996. This paper is available as PDF (185 K) or via email.
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