A Model to Explain the Duration of a Currency Crisis

Louise Allsopp

International Journal of Finance & Economics, 2000, vol. 5, issue 4, 331-37

Abstract: There are two main schools of thought which seek to explain currency crises: fundamentalist theories (Krugman P. 1979) and speculative theories (Obstfeld M. 1986). However, neither of these approaches considers the duration of a currency crisis. I explain the duration of a crisis in terms of a war of attrition model. Having set up the basic framework, I consider the impact of a change in the parameter values on a government's optimal time of concession. I them introduce asymmetric post-stabilization utilities into the framework. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.

Date: 2000
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