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Why Clashes Between Internal and External Stability Goals End in Currency Crises, 1797-1994

Michael Bordo () and Anna Schwartz

No 5710, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F (search for similar items in EconPapers)
Date: 1996-08
Note: ME IFM
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Published as Open Economies Review, Vol. 7 pp. 437-468, December 1996

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