international monetary systems: An historical overview, Macroeconomics

#question.Q8. In 1961, Germany faced the dilemma of an external surplus and a booming economy. As a result, speculative capital flowed into Germany and the Germans felt obliged to revalue their currency (rather than to devalue it).
Can you describe how such a “revaluation crisis” or “inflow attack” might operate when the government (like Germany’s at the time) is highly fearful of inflation? The reasoning is different from that underlying the devaluation crisis discussed in chapter 18, because interest rates are pushed down by speculators and there is no danger of running out of foreign reserves.
This is for Paul Krugman''s book international economics theory & policy chpt 19
Posted Date: 9/20/2012 3:15:31 PM | Location : United States







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