Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis
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Pompeo Della Posta
Abstract
The recent euro area crisis shows some similarities with the fixed exchange rate crisis that affected the European Monetary System in 1992–93. I argue that the theoretical framework to be used in order to analyze them should also be similar. As a matter of fact, in both cases, the point of view of the government (that compares costs and benefits of its action) should be considered together with the point of view of speculators, who look at the state of the economic fundamentals in order to decide whether to launch an attack or not. This allows to represent and to interpret, among other things, both the initial “honeymoon” years of EMU and the recent euro area crisis.
Acknowledgements
I would like to thank the participants in the seminars held at Hong Kong University of Science and Technology (Hong Kong), Yokohama University (Japan), CIRANO (Montreal, Canada), XXIV IT&FA conference (Sarasota, FL, USA) and AISSEC conference (Macerata, Italy), for their comments and suggestions on a preliminary version of this paper. Needless to say, none of the can be held responsible for my remaining mistakes.
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Articles in the same Issue
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- Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap
- Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis
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Articles in the same Issue
- Frontmatter
- Articles
- With Whom Do Nations Trade? – The Fading Distance
- Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap
- Self-Fulfilling and Fundamentals Based Speculative Attacks: A Theoretical Interpretation of the Euro Area Crisis
- Is India Ready for Inflation Targeting?
- Inward and Outward Foreign Direct Investment and Inequality: Evidence from a Group of Middle-Income Countries
- India-Us Trade and Investment: Have They Been Up To Potential?
- How do Liberalization, Institutions and Human Capital Development affect the Nexus between Domestic Private Investment and Foreign Direct Investment? Evidence from Sub-Saharan Africa
