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Self-fulfilling and fundamentals based speculative attacks on public debt

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  • Pompeo Della Posta

Abstract

The euro area crisis shows some similarities with the crisis that affected the European Monetary System in 1992-93. I argue that the theoretical framework to be used in order to analyze it can also be similar. As a matter of fact, together with the point of view of the government, that should compare costs and benefits of defaulting on the public debt-something already suggested in the literature-it should be considered the point of view of speculators, who look at the state of the economic fundamentals in order to decide whether to attack or not. This helps explaining and interpreting both the recent crisis and the effects of the fiscal and monetary policy measures that have been adopted in order to solve it.

Suggested Citation

  • Pompeo Della Posta, 2014. "Self-fulfilling and fundamentals based speculative attacks on public debt," Discussion Papers 2014/178, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    • Handle: RePEc:pie:dsedps:2014/178
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2014-178.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Euro area crisis; economic fundamentals; self-fulfilling expectations; public debt; speculative attacks.;
    All these keywords.

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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