NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Why Clashes Between Internal and External Stability Goals End in Currency Crises, 1797-1994

Michael D. Bordo, Anna J. Schwartz

NBER Working Paper No. 5710 (Also Reprint No. r2130)
Issued in August 1996
NBER Program(s):Monetary Economics, International Finance and Macroeconomics

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.

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Document Object Identifier (DOI): 10.3386/w5710

Published: Open Economies Review, Vol. 7 pp. 437-468, December 1996 citation courtesy of

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