Handbook of Exchange Rates

25.5 Conclusion

Our goal has been to show how a lot of the newly minted ideas on currency crises relate back to a common intellectual ancestor, Salant and Henderson (1978)—as seen through the lens of the KFG model. The essential idea in S&H is that speculators betting against a government policy will influence the success, failure, or at least duration of that policy in a forecastable way. Fundamentals may differ across crises, and that is to be expected, but the ways we think about those fundamentals draws on a common construct. Finally, we are skeptical about the long-lasting usefulness of odd-ball model solutions, for example, bubbles or other arbitrary indeterminacies, as explanations of crises. Economists normally refer to data unrelated to fundamentals as unexplained residuals.

¹Although not related directly to the modern crisis literature, economic historians, for example, Garber (2000) and Goldgar (2007), are now providing primary-source historical research accounts challenging some of the sensational stories pulled by Kindleberger (-NIL-) from the popular press and bone-to-pick pamphleteers.

²We were tempted to refer to speculative attacks based on fundamentals as the “Fed View,” but while the approach was developed at the Fed, it did not represent official Federal Reserve policy any more than the Mundell-Fleming-(Polak) model represented official IMF policy.

³Flood and Marion (1999) provided a fairly comprehensive survey over 10 years ago. As a measure of the popularity/relevance ...