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Reassessment Of Currency Index By Fundamentals

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Author Info

  • Hiroya Akiba

    (School of Political Science & Economics, Waseda University)

  • Yonghui Jia

    (Graduate School of Economics, Waseda University)

Abstract

We examine empirical consistency of the fundamentals in (1) the Middle and South American and (2) the Asian currency crises with the first-generation model, using panel data. We also evaluate our model by forecasting, and examine the differences between the two currency crises in terms of fundamentals. Some differences in explanatory power between fundamentals suggest that we should consider other factors in addition to our fundamentals. Dividing data into the two countries groups manifests that the causes were slightly different. The in-sample and out-of-sample tests indicate that our model could better predict the Middle and South American currency crisis.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 8 (2007)
Issue (Month): 1 (May)
Pages: 65-93

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Handle: RePEc:cuf:journl:y:2007:v:8:i:1:p:65-93

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Related research

Keywords: Currency crisis; Fundamentals; Panel data;

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References

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  1. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
  2. Gian-Maria Milesi-Ferretti & Assaf Razin, 1998. "Current Account Reversals and Currency Crisis-Empirical Regularities," IMF Working Papers 98/89, International Monetary Fund.
  3. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
  4. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
  5. Roberto Chang & Andres Velasco, 1998. "The Asian Liquidity Crisis," NBER Working Papers 6796, National Bureau of Economic Research, Inc.
  6. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
  7. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1995. "Speculative attacks on pegged exchange rates: an empirical exploration with special reference to the European Monetary System," Working Papers in Applied Economic Theory 95-04, Federal Reserve Bank of San Francisco.
  8. Michael P. Dooley, 1997. "A Model of Crises in Emerging Markets," NBER Working Papers 6300, National Bureau of Economic Research, Inc.
  9. Christian B. Mulder & Matthieu Bussière, 1999. "External Vulnerability in Emerging Market Economies - How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion," IMF Working Papers 99/88, International Monetary Fund.
  10. Chinn, Menzie D. & Dooley, Michael P. & Shrestha, Sona, 1999. "Latin America and East Asia in the context of an insurance model of currency crises," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 659-681, August.
  11. Ramon Moreno, 1995. "Macroeconomic behavior during periods of speculative pressure or realignment: evidence from Pacific Basin economies," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.
  12. Frederic S. Mishkin, 1997. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  13. Hali J. Edison, 2003. "Do indicators of financial crises work? An evaluation of an early warning system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 11-53.
  14. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  15. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," NBER Working Papers 5142, National Bureau of Economic Research, Inc.
  16. Ceyla Pazarbasioglu & Inci Ötker, 1994. "Exchange Market Pressures and Speculative Capital Flows in Selected European Countries," IMF Working Papers 94/21, International Monetary Fund.
  17. Ilan Goldfajn & Rodrigo O. Valdés, 1997. "Capital Flows and the Twin Crises : The Role of Liquidity," IMF Working Papers 97/87, International Monetary Fund.
  18. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
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