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Sources of Currency Crisis: An Empirical Analysis

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  • Weber, Axel A.
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    Abstract

    Two types of currency crisis models coexist in the literature: first generation models view speculative attacks as being caused by economic fundamentals which are inconsistent with a given parity. Second generation models claim self-fulfilling speculation as the main source of a currency crisis. Recent empirical research in international macroeconomics has attempted to distinguish between the sources of currency crises. This paper adds to this literature by proposing a new empirical approach to identifying the speculative and fundamental components of currency crises in the context of a structural vector autoregression model. Our results suggest that only for the French franc can a substantial speculative component be identified as a potential source of the 1992-93 ERM crisis.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfb/bonsfb418.pdf
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    Bibliographic Info

    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 418.

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    Length: pages
    Date of creation: Nov 1997
    Date of revision:
    Handle: RePEc:bon:bonsfb:418

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    Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

    Related research

    Keywords: exchange rates; speculation; fundamentals; currency crisis; purchasing; power parity; structural vector autoregression; impulse response;

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