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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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Keywords: speculative attack; exchange rate crisis; public and private information;

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  1. Massimo Sbracia & Andrea Zaghini, 2000. "Expectations and Information in Second Generation Currency Crises Models," Econometric Society World Congress 2000 Contributed Papers 0462, Econometric Society.
  2. Carlsson, H. & Damme, E.E.C. van, 1993. "Global games and equilibrium selection," Open Access publications from Tilburg University urn:nbn:nl:ui:12-154416, Tilburg University.
  3. Linda S. Goldberg, 1990. "Predicting Exchange Rate Crises: Mexico Revisited," NBER Working Papers 3320, National Bureau of Economic Research, Inc.
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  9. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
  10. Jeanne, Olivier, 1997. "Are currency crises self-fulfilling?: A test," Journal of International Economics, Elsevier, vol. 43(3-4), pages 263-286, November.
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  20. Loungani, Prakash, 2001. "How accurate are private sector forecasts? Cross-country evidence from consensus forecasts of output growth," International Journal of Forecasting, Elsevier, vol. 17(3), pages 419-432.
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  23. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
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  25. David M. Frankel & Stephen Morris & Ady Pauzner, 2000. "Equilibrium Selection in Global Games with Strategic Complementarities," Econometric Society World Congress 2000 Contributed Papers 1490, Econometric Society.
  26. Marc Klau & John Hawkins, 2000. "Measuring potential vulnerabilities in emerging market economies," BIS Working Papers 91, Bank for International Settlements.
  27. Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, vol. 20(1-2), pages 143-156, February.
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