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A Currency Crises Model That Works: A Payments Disequilibrium Approach

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  • Ekniti Nitithanprapas

    (Finance Ministry of Thailand)

  • Thomas D. Willett

    (Claremont McKenna College and Claremont Graduate University)

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    Abstract

    The rash of international financial crises in the 1990s have stimulated great interest in models to predict crises and explain the patterns of contagion that follow crisis. In both of these respects analysis of the Asian crisis has proven to be quite controversial. While some economists have argued that the Thai crises should have been quite predictable based on the similarities between Thailand’s situation and that of the Mexican crisis two years prior, see, for example, Salvatore (1999), other economists have argued that the Thai crisis was not predictable on the basis of the then available research, see, for example, Furman and Stiglitz (1998). Likewise some leading economists have argued that the pattern of contagion following the Thai crisis cannot be explained by rational economic models.1 As a consequence they point to self-fulfilling and/or destabilizing speculation, rather than economic fundamental as the primary causes of the Thai crisis and subsequent international financial contagion.

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    Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2000-25.

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    Handle: RePEc:clm:clmeco:2000-25

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    1. Salvatore, Dominick, 1999. "Could the Financial Crisis in East Asia Have Been Predicted?," Journal of Policy Modeling, Elsevier, Elsevier, vol. 21(3), pages 341-347, May.
    2. Michael P. Dooley & Eduardo Fernandez-Arias & Kenneth M. Kletzer, 1994. "Recent Private Capital Inflows to Developing Countries: Is the Debt Crisis History?," NBER Working Papers 4792, National Bureau of Economic Research, Inc.
    3. Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
    4. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
    5. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    6. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 534, Board of Governors of the Federal Reserve System (U.S.).
    7. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
    8. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1994. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," CEPR Discussion Papers 1060, C.E.P.R. Discussion Papers.
    9. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 544, Board of Governors of the Federal Reserve System (U.S.).
    10. Calvo, Guillermo A, 1996. "Capital Flows and Macroeconomic Management: Tequila Lessons," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 1(3), pages 207-23, July.
    11. Paul R. Masson, 1998. "Contagion," IMF Working Papers 98/142, International Monetary Fund.
    12. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    13. Aaron Tornell, 1999. "Common Fundamentals in the Tequila and Asian Crises," Harvard Institute of Economic Research Working Papers 1868, Harvard - Institute of Economic Research.
    14. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
    15. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-48, September.
    16. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    17. Catherine A. Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? a Test," IMF Working Papers 98/154, International Monetary Fund.
    18. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
    19. repec:wop:humbsf:1996-65 is not listed on IDEAS
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    Cited by:
    1. Alex Mandilaras & Graham Bird, 2007. "Foreign exchange markets in south-east Asia 1990-2004: An empirical analysis of spillovers during crisis and non-crisis periods," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 40, Money Macro and Finance Research Group.
    2. Arias, Guillaume & Erlandsson, Ulf, 2004. "Regime switching as an alternative early warning system of currency crises - an application to South-East Asia," Working Papers 2004:11, Lund University, Department of Economics.
    3. Willett, Thomas D., 2001. "Truth in advertising and the great dollarization scam," Journal of Policy Modeling, Elsevier, Elsevier, vol. 23(3), pages 279-289, April.
    4. Thomas D. Willett, 2001. "Truth in Advertising and The Great Dollarization Scam," Claremont Colleges Working Papers, Claremont Colleges 2001-05, Claremont Colleges.

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