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Was the French Franc Crisis a Sunspot Equilibrium?

Olivier Jeanne and Paul Masson.
Authors registered in the RePEc Author Service: Olivier Jeanne () and Paul Robert Masson ()

No C97-095, Center for International and Development Economics Research (CIDER) Working Papers from University of California at Berkeley

Abstract: This paper examines the extent to which speculation against the French franc in 1992-93 was motivated by the fundamentals or resulted from a sunspot phenomenon. We develop a model of currency crises which encompasses both hypotheses about the origin of speculation. The estimation shows that the model with sunspots not only better tracks the episodes of speculation, but also gives a better account of the relationship between the fundamentals and the devaluation expectations.

Date: 1997-10-01
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