Self-fulfilling and fundamentals based speculative attacks on public debt

Pompeo Della Posta

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: The euro area crisis shows some similarities with the crisis that affected the European Monetary System in 1992-93. I argue that the theoretical framework to be used in order to analyze it can also be similar. As a matter of fact, together with the point of view of the government, that should compare costs and benefits of defaulting on the public debt-something already suggested in the literature-it should be considered the point of view of speculators, who look at the state of the economic fundamentals in order to decide whether to attack or not. This helps explaining and interpreting both the recent crisis and the effects of the fiscal and monetary policy measures that have been adopted in order to solve it.

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: 2014-03-01
New Economics Papers: this item is included in nep-mac
Note: ISSN 2039-1854
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