Why clashes between internal and external stability goals end in currency crises, 1797–1994

Michael Bordo and Anna Schwartz

Open Economies Review, 1996, vol. 7, issue 1, 437-468

Abstract: We argue that recent currency crises reflect clashes between fundamentals and pegged exchange rates, just as did crises in the past. We reject the view that crises reflect self-fulfilling prophecies that are not closely related to measured fundamentals. Doubts about the timing of a market attack on a currency are less important than the fact that it is bound to happen if a government's policies are inconsistent with pegged exchange rates. We base these conclusions on a review of currency crises in the historical record under metallic monetary regimes and of crises post-World War II under Bretton Woods, and since, in European and Latin American pegged exchange rate regimes. Copyright Kluwer Academic Publishers 1996

Keywords: fundamentals; self-fulfilling prophecies; currency crises (search for similar items in EconPapers)
Date: 1996
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DOI: 10.1007/BF01886207

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