Economics · International Economics
The 'second-generation' currency crisis models (Obstfeld, 1994) differ from first-generation models (Krugman, 1979) primarily in that:
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- 1Second-generation models focus exclusively on banking sector fragility as the source of crises
- 2Second-generation models predict crises only in countries with fixed exchange rates pegged to gold
- 3Second-generation models allow for self-fulfilling expectations and multiple equilibria, where a crisis can occur even with sound fundamentals✓
- 4Second-generation models rely on fundamental fiscal deficits as the trigger for speculative attacks
Correct answer
Second-generation models allow for self-fulfilling expectations and multiple equilibria, where a crisis can occur even with sound fundamentals
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