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Title: Contagious Speculative Attacks

Author(s): Stefan Gerlach and Frank Smets

Publication Date: November 1994

Keyword(s): Exchange Rate Contagion and Speculative Attacks

Programme Area(s): International Macroeconomics

Abstract: During the European exchange market turmoil in 1992-3 it was evident that speculative attacks tended to spread across currencies. Using a two-country 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 important, 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'.

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Bibliographic Reference

Gerlach, S and Smets, F. 1994. 'Contagious Speculative Attacks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1055