TY  - JOUR
AU  - Burnside,Craig
AU  - Eichenbaum,Martin
AU  - Rebelo,Sergio T.
TI  - On the Fundamentals of Self-Fulfilling Speculative Attacks
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7554
PY  - 2000
Y2  - February 2000
UR  - http://www.nber.org/papers/w7554
L1  - http://www.nber.org/papers/w7554.pdf
N1  - Author contact info:
Craig Burnside
Department of Economics
Duke University
213 Social Sciences Building
Durham, NC 27708-0097
Tel: 919/660-1808
Fax: 919/684-8974
E-Mail: craig.burnside@duke.edu

Martin S. Eichenbaum
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL  60208
Tel: 847/491-8232
Fax: 847/491-7001
E-Mail: eich@northwestern.edu

Sergio Rebelo
Northwestern University
Kellogg School of Management
Department of Finance
Leverone Hall
Evanston, IL  60208-2001
Tel: 847/467-2329
Fax: 847/491-5719
E-Mail: s-rebelo@northwestern.edu
AB  - This paper proposes a theory of twin banking-currency crises in which both fundamentals and self-fulfilling beliefs play crucial roles.  Fundamentals determine whether crises will occur. Self-fulfilling beliefs determine when they occur.  The fundamental that causes  twin crises' is government guarantees to domestic banks' foreign creditors.  When these guarantees are in place twin crises inevitably occur, but their timing is a multiple equilibrium phenomenon that depends on agents' beliefs.  So while self-fulfilling beliefs have an important role to play, twin crises do not happen just anywhere.  They happen in countries where there are fundamental problems - problems such as guarantees to the financial sector.
ER  -