Michael D. Bordo, Anna J. Schwartz

Bibliographic Information

NBER Working Paper No. 5710 (Also Reprint No. r2130)
Issued in August 1996
NBER Program(s):ME, IFM

Published: Open Economies Review, Vol. 7 pp. 437-468, December 1996 citation courtesy of

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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.

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