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A Model of the Currency Crisis of 1992: the Case of the British Pound and the Italian Lira

Author

Listed:
  • Mongiardino, A.

Abstract

The purpose of this paper is to develop a theoretical model of the attack on the Italian Lira and the British Pound and the subsequent exit of these currencies from the ERM in September 1992. One element that has been crucial in the formulation of agents' expectations of future exchange rates, and hence the sustainability of the system, has been the degree of willingness of the Bundesbank to intervene and support the weak currencies of the System. The model will focus on this aspect and will provide a framework where the agents' uncertainty about the stance of the Bundesbank towards the 'weak' currencies of the System is reflected in increasingly high interest rate differentials between the 'weak' countries and Germany.

Suggested Citation

  • Mongiardino, A., 1996. "A Model of the Currency Crisis of 1992: the Case of the British Pound and the Italian Lira," The Warwick Economics Research Paper Series (TWERPS) 463, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:463
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1995-1998/twerp463.pdf
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    More about this item

    Keywords

    EXCHANGE RATE; CURRENCIES;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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