Coordination, cooperation, contagion and currency crises - Archive ouverte HAL Access content directly
Journal Articles Journal of International Economic Law Year : 2001

Coordination, cooperation, contagion and currency crises

(1) , (2)
1
2

Abstract

We present a micro-founded model where governments have an incentive to devalue to increase the national market share in a monopolistically competitive sector. Currency crises generated by self-fulfilling expectations are possible because workers demand high wages when they expect a devaluation. This decreases the competitiveness and profits of national firms and induces the government to devalue. We show that the more important trade competition, the more likely self-fulfilling speculative crises and the larger the set of multiple equilibria. Coordination decreases the possibility of simultaneous self-fulfilling speculative crises in the region and reduces the set of multiple equilibria. However, regional coordination, even though welfare improving, makes countries more dependent on other countries’ fundamentals so that it may induce more contagion.

Dates and versions

hal-03609263 , version 1 (15-03-2022)

Identifiers

Cite

Olivier Loisel, Philippe Martin. Coordination, cooperation, contagion and currency crises. Journal of International Economic Law, 2001, 53 (2), pp.399 - 419. ⟨10.1016/S0022-1996(00)00055-6⟩. ⟨hal-03609263⟩
9 View
0 Download

Altmetric

Share

Gmail Facebook Twitter LinkedIn More