Models of Currency Crises with Self-Fulfilling Features

24 Pages Posted: 24 Jul 2000

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Date Written: October 1995

Abstract

The discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency-market equilibria. After describing an illustrative model in which high unemployment may cause an exchange- rate crisis with self-fulfilling features, the paper reviews some other self-reinforcing mechanisms. Recent econometric evidence seems to support the practical importance of these mechanisms.

Suggested Citation

Obstfeld, Maurice, Models of Currency Crises with Self-Fulfilling Features (October 1995). NBER Working Paper No. w5285. Available at SSRN: https://ssrn.com/abstract=225349

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