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.

^*Published: Open Economies Review, Vol. 7 pp. 437-468, December 1996

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Machine-readable bibliographic record - MARC, RIS, BibTeX