Piersanti, Giovanni: The macroeconomic theory of exchange rate crises
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Remember the 1990s? Capitalism seemed to have won the race, britpop had its heydays, dot.com stockprices skyrocketed, and the US president was almost ousted due to his affair with an intern. And there were all those currency crises: in 1992/1993, the EMS turmoil kicked the UK and several other countries out of the European system of fixed exchange rates. In 1994/95, Mexico had to abandon its peg against the dollar and shortly dropped into a financial and economic abyss. Worst of all, the Asian crisis of 1997/98 wreaked havoc among economies that had looked like best-practice examples of sound fiscal and monetary policies. While all those unhappy episodes were unhappy in their own way, they also shared some common traits—most notably, a non-sustainable peg that eventually came under attack by international investors, and monetary authorities that, after a brief period of fierce and costly resistance, had to give in. Not surprisingly, these events triggered an enormous amount of...
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