Contagious Speculative Attacks

26 Pages Posted: 13 Dec 2005

See all articles by Stefan Gerlach

Stefan Gerlach

Central Bank of Ireland; Centre for Economic Policy Research (CEPR)

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

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Date Written: September 1994


During the European exchange market turmoil in 1992-93 it was evident that speculative attacks tended to spread across currencies. Using a twocountry version of the model developed by Flood and Garber (1984) we show how a speculative attack against one currency may accelerate the warranted collapse of a second parity. More importantly, even if the parity of the second currency is viable in the absence of a collapse of the first one, it might be subjected to a speculative attack if the reserves available to defend the parity are small.

Suggested Citation

Gerlach, Stefan and Smets, Frank, Contagious Speculative Attacks (September 1994). BIS Working Paper No. 22, Available at SSRN: or

Stefan Gerlach (Contact Author)

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

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Leuven, B-3000

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