Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis

Posta Pompeo Della ()
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Posta Pompeo Della: Dipartimento di Economia e Management, Università di Pisa, Via Ridolfi, 10 56124 Pisa, Italy

Global Economy Journal, 2016, vol. 16, issue 3, 459-478

Abstract: The recent euro area crisis shows some similarities with the fixed exchange rate crisis that affected the European Monetary System in 1992–93. I argue that the theoretical framework to be used in order to analyze them should also be similar. As a matter of fact, in both cases, the point of view of the government (that compares costs and benefits of its action) should be considered together with the point of view of speculators, who look at the state of the economic fundamentals in order to decide whether to launch an attack or not. This allows to represent and to interpret, among other things, both the initial “honeymoon” years of EMU and the recent euro area crisis.

Keywords: euro area crisis; economic fundamentals; self-fulfilling expectations; public debt; speculative attacks (search for similar items in EconPapers)
JEL-codes: E65 F34 F36 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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DOI: 10.1515/gej-2015-0063

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