Interpreting the Erm Crisis: Country-Specific and Systemic Issues

CEPR Discussion Paper Series No. 1466

Posted: 13 Mar 1997

See all articles by Willem H. Buiter

Willem H. Buiter

Citigroup New York; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Columbia University

Giancarlo Corsetti

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

Paolo A. Pesenti

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Date Written: October 1996

Abstract

Most interpretations of the Exchange Rate Mechanism crisis of 1992/3 ignore the key role played by structural policy spillovers among European countries and overlook the effects of coordination (or lack thereof) of monetary and exchange rate policies among the countries making up the periphery of the system. This paper provides a simple analytical framework, able to encompass the recent literature on currency crises, while developing it by bringing out the decisive role of the strategic interactions among national policy-makers in a multi-country monetary and exchange rate game. In contrast to an approach that focuses exclusively on country-specific issues, a systemic view is ultimately able to unravel more coherently, and more convincingly, the "puzzles" of the ERM crisis.

JEL Classification: F31, F32, F33, F41, F42

Suggested Citation

Buiter, Willem H. and Corsetti, Giancarlo and Pesenti, Paolo A., Interpreting the Erm Crisis: Country-Specific and Systemic Issues (October 1996). CEPR Discussion Paper Series No. 1466. Available at SSRN: https://ssrn.com/abstract=4736

Willem H. Buiter (Contact Author)

Citigroup New York

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Giancarlo Corsetti

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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University of Rome III - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Paolo A. Pesenti

Federal Reserve Bank of New York ( email )

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National Bureau of Economic Research (NBER)

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