Why Clashes between Internal and External Stability Goals End in Currency Crises, 1797-1994

54 Pages Posted: 3 Jul 1997 Last revised: 3 Oct 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Anna J. Schwartz

City University of New York (CUNY); National Bureau of Economic Research (NBER) - NY Office

Date Written: August 1996

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.

Suggested Citation

Bordo, Michael D. and Schwartz, Anna J., Why Clashes between Internal and External Stability Goals End in Currency Crises, 1797-1994 (August 1996). NBER Working Paper No. w5710. Available at SSRN: https://ssrn.com/abstract=8710

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anna J. Schwartz

City University of New York (CUNY) ( email )

17 Lexington Avenue
New York, NY 10010
United States

National Bureau of Economic Research (NBER) - NY Office

365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
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212-817-7957 (Phone)

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