Currency crises: Are they all the same?

2003

The plethora of currency crises around the world has fueled many theories on the causes of speculative attacks. The first-generation models focus on fiscal problems. The second-generation models emphasize countercyclical policies and self-fulfilling crises. In the 1990s, models pinpoint to financial excesses. With the crisis of Argentina in 2001, models of sovereign default have become popular again. While the theoretical literature has emphasized variety, the empirical literature has supported the "one size fits all" models. This paper contributes to the empirical literature by assessing whether the crises of the last thirty years are of different varieties. Crises are found to be of six varieties. Four of those varieties are associated with domestic economic fragility. But crises can also be provoked by just adverse world market conditions, such as the reversal of international capital flows. The so-called sudden-stop phenomenon identifies the fifth variety of crises. Finally, a small number of crises occur in economies with immaculate fundamentals but this type of crises is not an emerging-market phenomenon.

Open Economies Review, 1996

8y using data from the Mexican economy, this paper estimates a speculative attack model of currency crises in order to identify the role of macroeconomic fundamentals and early warning signals of a potential currency crisis. A deterioration in fundamentals appears to generate high onestep-ahead probabilities for the observed regime changes during the sample period 1982-1994. Particularly, foreign reserve losses, expansionary output, monetary and fiscal policies, an increase in inflation differentials and the share of short-term foreign currency-indexed debt, and an appreciation of the real exchange rate appear to have contributed to the speculative pressures and the associated regime changes.

With this conference, held nineteen years after the appearance of Krugman's pathbreaking article on speculative attacks, the literature on this subject can be said to have passed through adolescence and reached maturity (in, one hopes, all senses of the word). Like any maturing subject, this one evinces changing preoccupations. The early literature on speculative attacks focused on conflicts between the stance of monetary and fiscal policies on the one hand and the authorities' exchange rate commitment on the other. An attack was assumed to occur when excessively expansionary monetary and fiscal policies gradually depleted the central bank's international reserves. It was triggered when those reserves fell to a critical threshold at which they were abruptly exhausted by currency speculators. This model was attuned to the time in the sense that inflation and, by implication, excessively expansionary monetary and fiscal policies were widespread problems, creating chronically overvalued currencies, and in that capital markets were less than fully liberalized, limiting the

2016

This paper develops a critical view of the conventional currency crisis models and presents a Post Keynesian view on financial instability and speculative attack. It also analyzes the 1998/1999 Brazilian currency crisis, according to the Post Keynesian approac

2004

This paper is aimed at studying the determinants of currency crises suffered by Argentina from 1885 to 2003, on one hand, and at characterizing each particular currency crisis, on the other hand. Firstly, we look for regularities and common factors throughout history. We split the dataset in crises and non-crises years and carried out graphical analysis in order to analyze the behavior of key macroeconomic variables in the neighborhood of currency crises. We complemented it by estimating a logit model including a set of variables chosen from the prescriptions of the existing currency crises theories. Secondly, following Kaminsky (2003) we perform regression tree analysis to classify crises and crashes into different varieties proposed by the theories at stake. We use fifteen financial and macroeconomic variables suggested by the empirical literature. It is found that fiscal imbalances were always present, which is consistent with the predictions of first generation speculative attac...

IMF Working Papers, 2005

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper takes a step in empirically testing the implications of a number of theoretical models that attempt to highlight the dynamics behind currency crises. By focusing on countries with broadly disparate economic and political arrangements, the study attempts to determine the extent to which these variables matter in affecting the probabilities of currency crises occurring. The empirical findings provide support for the view that, in general, a deterioration in economic fundamentals and the pursuit of lax monetary policy can contribute to currency crises. The experiences of several emerging market economies suggests that the sustainability of exchange rate policy depends both on adequate policy responses to the shocks to the economy and on the fragility of the economic, financial, and political system.

2005

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper takes a step in empirically testing the implications of a number of theoretical models that attempt to highlight the dynamics behind currency crises. By focusing on countries with broadly disparate economic and political arrangements, the study attempts to determine the extent to which these variables matter in affecting the probabilities of currency crises occurring. The empirical findings provide support for the view that, in general, a deterioration in economic fundamentals and the pursuit of lax monetary policy can contribute to currency crises. The experiences of several emerging market economies suggests that the sustainability of exchange rate policy depends both on adequate policy responses to the shocks to the economy and on the fragility of the economic, financial, and political system.

The Paul Krugman's Balance-of-Payments Crises model analyses a situation where a currency crisis in a fixed exchange rate regime can emerge from misconduct on the economic policy. The dynamic of international reserves dictates the ability of the policymaker to defend the exchange rate regime and the model presents a situation in which the speculative attack occurs before the international reserves exhaust. The aim of this work is to reexamining the model and solving it numerically. For that purpose some functional forms were adopted for the generic functions introduced in the original paper, as well as the attribution of values to the parameters of the model.

International Monetary Fund eBooks, 1999

This is a Working Paper and the author(s) would welcome any comments on the present text. Citations should refer to a Working Paper o/the International Monetary Fund. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.

Economic Systems, 2003