Once Italy is in, with an appreciated currency, the country will soon be back on the ropes, just as in 1992, when the currency came under attack. - Rudi Dornbusch

In figure 3 we show the money and domestic asset market equilibrium schedules for given stocks of each of the assets. Along MM the domestic money market is in equilibrium. Higher interest rates reduce money demand so that equilibrium requires a depreciation and thus a rise in the domestic currency value of foreign assets and - hence wealth. The exchange rate thus plays a balancing role by affecting the valuation of assets.

Monetary policy affects the ... of goods and assets and (iii) effects through changes in explicit or implicit real interest rates on aggregate demand.

The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.