Currency boards, credibilidad y crisis cambiarias

Abstract

The paper calls into question the proposition that currency boards are a solution in preventing currency crises. On the basis of a model of the “second generation” type, it shows that, in the presence of unemployment persistence, a currency board system can become vulnerable to a currency crisis, as well. The model underlies the role played both by expectations of exchange rate realignments and by fundamentals in triggering the crisis. As the persistence of unemployment has a feedback effect on subsequent periods’ expectations, the credibility of a currency board may decrease over time, eventually inducing a self-fulfilling crisis.