questioning does not distinguish between the two types of involuntary unemployment.

Thus, those individuals who accept may donlyT be unemployed in the frustration definition,

and we still have more than one theory explaining this type of unemployment.

Secondly, De Vroey has chosen to disregard equilibrium search theory, although it is a

workhouse in labour market theory. His argument is that it is underpinned by alternative

assumptions about the organisation of trade (that is, unlike the remaining theories it cannot

be classified as belonging to a Walrasian or a Marshallian approach). Therefore, it does not

fit into his survey and, more importantly, the involuntary modifier becomes trivialised.

These arguments are rather weak. The best description of the organisation of trade in the

labour market seems to be provided by the search-matching framework. In this framework,

unemployed individuals would see themselves as involuntarily unemployed, if asked in

the way De Vroey suggests. Wage bargaining, efficiency wages etc. may be embedded in

the matching framework, and we therefore have many explanations for a high involuntary

unemployment in the real world. Thus, economic theory is in accordance with the dfacts oflifeT. Moreover, the fact that the involuntary modifier becomes trivial in the matching

framework should not be seen as a weakness of the framework. If anything, this may

indicate that the involuntary unemployment concept is not so interesting after all.

Finally, let me emphasise that, although I do not agree with his final conclusions, I

think De Vroey has made an important contribution to our understanding of involuntary

unemployment. The book should be of great interest to researchers and graduate students

interested in Labour Economics, Macroeconomics and the Political Economy of

Employment and Unemployment.

References

Dasgupta, P., Ray, D., 1986. Inequality as a determinant of malnutrition and unemployment theory.

Economic Journal 96, 1011–1034.

Layard, R., Nickell, S., Jackman, R., 1993. Unemployment. Oxford University Press, Oxford.

Claus Thustrup Kreiner

Institute of Economics, University of Copenhagen,

1455 Copenhagen K, Denmark

E-mail address: ctk@econ.ku.dk

Andre Fourcans, Raphael Franck, Currency Crises: A Theoretical and Empirical

Perspective, Edward Elgar, 2003, Cheltenham, UK and Northampton, MA, USA

Much has been written on emerging market crises, especially since Thailand plunged

into a crisis in July 1997. Contrary to early expectations, that crisis proved deeper and

more widespread than previous crises and led to the development of third-generation

models of currency crises that extended previous models in trying to explain the 1997–

1999 East Asian crisis.

doi:10.1016/j.ejpoleco.2005.05.002

Book reviews 1103

The book by Fourcans and Franck presents an excellent and very useful critical

evaluation and overview of Paul Krugman’s first-generation model of inconsistent

fundamentals, Maurice Obstfeld’s second-generation model of multiple equilibria, and

third-generation models of currency mismatches to analyze the spread of currency crises in

emerging markets from 1997 to 1999. The book also examines how different exchange-

rate regimes operated in the face of speculative attacks and how international financial

institutions, especially the IMF, performed in limiting the damage from currency crises.

Part 1 of the book (chapters 1–3) focuses on first-generation models of currency crises.

These were developed during the late 1970s and 1980s and postulate that deteriorated

fundamentals in a unique-equilibrium economy are the cause of the attacks. Specifically,

first-generation models assert that currency crises do not arise from speculators’ self-

fulfilling expectations but from monetary and fiscal policies that are incompatible with a

fixed exchange-rate regime. Here speculators make a rational assessment of a forthcoming

crisis and bet against the nation’s currency and prevailing exchange rate. The authors

subsequently examine the workings of different exchange rate regimes after the initial

collapse and devaluation, and extend the theoretical framework of the analysis to deal with

market imperfections. These first-generation models were used to explain the currency

crises in Latin America during the late 1970s and 1980s following the collapse of the

Bretton Woods System in 1971–1973.

Part 2 of the book (chapters 4–6) deals with second-generation models of currency

crises of multiple equilibria. These postulate that speculators’ self-fulfilling expectations

are the basic causes of crises and contagion, even though the nation’s fundamentals are not

inconsistent and have not deteriorated. Thus, they call into question the relevance of first-

generation models and the uniqueness of the economic equilibrium. Second-generation

models became popular following the 1992–1993 crisis in the European Monetary System

and show that speculative attacks result from mismanaged monetary and fiscal policies

that are inconsistent with a fixed peg. The authors show, however, that general currency

crises occur when fundamentals have deteriorated, and not simply by self-fulfilling

expectations, as postulated by second-generation models, thus questioning the validity of

these models in explaining the East Asian crises that started in 1997 and the subsequent

Russian and Brazilian crises in 1998 and 1999.

Part 3 (chapters 7–9) examines and evaluates third-generation models of currency crises

in emerging markets. These are based on the interactions among deteriorated

fundamentals, speculators’ expectations, and currency mismatches, and thus they are

much more relevant in analyzing the emerging markets currency crises of the 1990s than

are first- or second-generation models. The authors point out several common features of

these third-generation models. These are: fundamentals include also the level of

unemployment and the interest rate besides fiscal and monetary policies, speculative

attacks in emerging market economies are triggered by changes in economic conditions in

developed countries, and trade and financial links, as well as lack of coordination between

monetary and exchange-rate policies, lead to contagion to other emerging markets.

The last part (chapters 10–12) examines whether studies of currency crises shed light

on the cause of actual currency crises in the real world and the reforms that are required to

prevent crises before they occur, or to minimize their damage once they have occurred.

The authors point out that fixed exchange rates are inappropriate for emerging market

Book reviews1104

economies that are not financially disciplined. The authors conclude that the role that

international financial institutions play in minimizing the harmful effects of financial crises

in emerging markets is mixed, but that they cannot be blamed for the crises themselves.

Furthermore, the failure of many IMF-sponsored programs can often be attributed to

corrupted governments.

In conclusion, I can say that Fourcans and Franck admirably accomplish the goals that

they set for themselves and that their book should be of great interest to graduate students

and researchers who are interested in examining emerging-market currency crises.

Dominick Salvatore

Department of Economics, Fordham University,

Bronx, New York l0458, USA

E-mail address: Salvatore@fordham.edu.

Tel.: +1 718 817 3606, +1 718 817 4045; fax: +1 914 337 3355.

doi:10.1016/j.ejpoleco.2005.04.002

Book reviews 1105