The macroeconomic theory of exchange rate crises.

Abstract

This book started out as a set of lecture notes on speculative currency attacks models forMaster and Ph.D. students in international economics at the University of Rome “Tor Vergata” and at theUniversity of Teramo. It has been refined over the years to cover issues relating to the role played by financial intermediaries in speculative attacks, bank runs, the interaction between bank solvency and currency stability, capital flows and borrowing constraints, contagion across markets and countries, financial markets and asset price bubbles, strategic interaction among agents and equilibriumselection, and the dynamics of speculative attacks and of financial crises. This book attempts to provide both a survey of the theoretical literature on international financial crises and a systematic treatment of the analytical models. The book relies heavily on mathematical methods and techniques of system dynamics in both a deterministic and a stochastic context. A mathematical appendix is provided that comprehensively reviews the main techniques used in the text, to help the reader work through the model solutions. I have benefited from comments and criticism from many students and colleagues on various portions of the manuscript. I would especially like to thank Barbara Annicchiarico and Giancarlo Marini, who have had the unusual patience to read through successive versions of the manuscript making many insightful comments and suggestions that significantly enhanced both the content and the style of the final product.Thanks are also due to Fabrizio Adriani, Paolo Canofari, Luisa Corrado, Giovanni Di Bartolomeo, Marco Di Domizio, Bassam Fattouh, Maurizio Fiaschetti, Laurence Harris, Alberto Petrucci, Pasquale Scaramozzino, andMassimo Tivegna for comments and advice on specific parts of the manuscript at various stages. I am also very grateful to Adam Swallow, economics and finance commissioning editor at Oxford University Press, for his advice and encouragement and to the anonymous reviewers for their extremely useful comments and suggestions. Finally, I wish to express my boundless gratitude to my wife Vanda for her patience and support over a long period of time.