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Currency Crashes in Emerging Markets: Empirical Indicators

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  • Frankel, Jeffrey A
  • Rose, Andrew K

Abstract

We use a panel of annual data for over one hundred developing countries from 1971–92 to characterize currency crashes. We define a currency crash as a large change of the nominal exchange rate that is also a substantial increase in the rate of change of nominal depreciation. We examine the composition of the debt as well as its level, and a variety of other macroeconomic factors, external and foreign. Crashes tend to occur when: output growth is low; the growth of domestic credit is high; and the level of foreign interest rates is high. A low ratio of foreign direct investment to debt is consistently associated with a high likelihood of a crash.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1349.

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Date of creation: Feb 1996
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Handle: RePEc:cpr:ceprdp:1349

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Keywords: Composition; Data; Debt; Developing; Exchange Rate; Macroeconomic; Panel;

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References

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  1. Guillermo Calvo & Pablo Emilio Guidotti, 1991. "Speculative Attacks," IMF Working Papers 91/10, International Monetary Fund.
  2. Chuhan, Punam & Perez-Quiros, Gabriel & Popper, Helen, 1996. "International capital flows : do short-term investment and direct investment differ?," Policy Research Working Paper Series 1669, The World Bank.
  3. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  4. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
  5. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  6. Wei, S.J. & Frankel, J.A., 1992. "Yen Bloc or Dollar Bloc: Exchange Rate Policies of the East Asian Economies," Papers 92-08, University of Birmingham - International Financial Group.
  7. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  8. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17, April.
  9. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank.
  10. 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.
  11. Takatoshi Ito & Anne O. Krueger, 1994. "Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3," NBER Books, National Bureau of Economic Research, Inc, number ito_94-1.
  12. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
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