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Currency crises and uncertainty about fundamentals

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  • Alessandro Prati

    ()
    (IMF, Research Department)

  • Massimo Sbracia

    ()
    (Banca dÂ’Italia, Economic Research Department)

Abstract

This paper extends some theoretical results of Morris and Shin (1998) concerning the role of uncertainty about fundamentals in currency crises and tests their empirical relevance using a novel approach based on the distribution of survey expectations. Econometric evidence from the Asian crisis confirms the prediction that the dispersion of expectations affects the probability of a speculative attack and that the sign of this effect depends on whether expected fundamentals are "good" or "bad". Extensive robustness checks support the findings.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td02/td446_02/td446/tema_446_02.pdf
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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 446.

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Date of creation: Jul 2002
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Handle: RePEc:bdi:wptemi:td_446_02

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Web page: http://www.bancaditalia.it
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Keywords: speculative attack; exchange rate crisis; public and private information;

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