Crises, such as revolutions and currency attacks, rarely occur; but when they do they typically arrive in waves. C rises are typically infrequent events but they tend to be contagious, sometimes even among countries or regions that are seemingly unrelated. These two salient features are particularly evident for currency attacks, mass revolutions, and bank runs. In this paper, we offer a theory to explain the link between the rarity of crises and the contagion phenomenon.Eichengreen, Rose, and Wyplosz (1996a) offer systematic empirical evidence that corroborates these features for currency crises. With a panel of quarterly data covering 20 industrial economies from 1959 to 1993, they can only identify a small sample of 77 crises out of 2,800 total observations. 1 They estimate a binary probit model and find robust evidence for contagion: controlling for a wide range of macroeconomic variables, the existence of a currency attack elsewhere raises the probability of an attack on the domestic currency.2 Figure 1, panel A shows the number of currency attacks in each quarter during the operation of European Monetary System (EMS).3 Three distinct clusters of attacks are evident in this figure.1 They compile a speculative pressure index, which is a weighted average of percentage changes in exchange rate, foreign reserve, and interest rate. Currency attacks are identified as quarters in which the index is at least 1 1/2 standard deviations above the sample mean.2 Other empirical evidence and anecdotes for contagion of speculative attacks abound. See, for example, Bordo and Murshid (2001).3 EMS (Stage I) is chosen because it has well defined operating time and member states. Crisis data are obtained from Eichengreen, Rose, and Wyplosz (1996b).