TY  - JOUR
AU  - Flood,Robert P.
AU  - Marion,Nancy P.
TI  - Speculative Attacks: Fundamentals and Self-Fulfilling Prophecies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5789
PY  - 1996
Y2  - October 1996
UR  - http://www.nber.org/papers/w5789
L1  - http://www.nber.org/papers/w5789.pdf
N1  - Author contact info:
Robert Flood
Notre Dame
E-Mail: rflood1@nd.edu

Nancy Marion
Department of Economics
Dartmouth College
Hanover, NH  03755
E-Mail: Nancy.P.Marion@Dartmouth.EDU
M2  - featured in NBER digest on 1997-04-01
AB  - We develop a modified understand better the 1994 Mexican peso crisis as well as aspects of the European currency crises in 1992-93.  We introduce the assumption that the speculative attack is sterilized by the domestic monetary authority, we incorporate a stochastic risk premium, and we allow for some price stickiness.  The modified model shows that macroeconomic policies inconsistent in the longer run with a fixed exchange rate can push the economy inevitably towards a currency crisis, but it also demonstrates how a government currently following consistent macroeconomic policies can suddenly face a speculative attack triggered by a large shift in speculative opinion.  However, the ability of a sudden shift in speculative opinion to trigger an attack is bounded by the position of fundamentals.  Thus an attack does not require a later change in policies to make it profitable.
ER  -