How not to start a currency crisis


Paul Krugman's AEA lecture contains this little gem:

Back in 1976, a group of MIT graduate students was working at the Bank, thanks to a personal connection between the governor and Dick Eckaus. Portugal at the time was a bit of a crazy place, still suffering from the mild chaos that followed the overthrow of the dictatorship the year before. The economy had stabilized after an initial slump, but the currency was under pressure, with reserves rapidly dwindling. It turned out later that most of the reserve loss was due to foreign exchange hoarding by commercial banks – which was kind of funny, since at the time those banks were state–owned.



by datacharmer | Wednesday, January 06, 2010
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