A model to explain the duration of a currency crisis

There are two main schools of thought which seek to explain currency crises: fundamentalist theories (Krugman P. 1979. A model of balance of payments crises. Journal of Money, Credit and Banking 11: 311-325) and speculative theories (Obstfeld M. 1986. Rational and self-fulfilling balance of payments crises. American Economic Review 76: 72-81). However, neither of these approaches considers the duration of a currency crisis. I explain the duration of a crisis in terms of a war of attrition model. Having set up the basic framework, I consider the impact of a change in the parameter values on a government's optimal time of concession. I them introduce asymmetric post-stabilization utilities into the framework. Copyright (C) 2000 John Wiley & Sons, Ltd.