Working Paper: NBER ID: w5710
Authors: Michael D. Bordo; Anna J. Schwartz
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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| domestic monetary policy (E52) | currency crisis (F31) |
| misalignment between government policies and pegged exchange rates (F31) | speculative attacks (D84) |
| market expectations (D84) | currency crisis (F31) |
| domestic credit expansion (E51) | currency crisis (F31) |
| past experiences (C92) | current market expectations (D84) |