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Interpreting Currency Crises: A Review of Theory, Evidence, and Issues

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  • Omar F. Saqib

Abstract

The main objective of this paper is to understand the causes and symptoms of currency crises by reviewing its seminal literature, establishing its determinants, and outlining some of the relevant issues. The paper highlights the need to comprehend the process, which may lead to the inconsistency of the policies and render the situation favourable for a speculative attack. This involves, broadening the determinants of exchange rate crises beyond pure economic fundamentals through incorporating non-economic factors, such as political incentives on macroeconomic policy making. In effect, the review accentuates upon the need to develop a model that bridges the gap between the conventional and non-conventional determinants of a currency crisis.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38608.de/dp303.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 303.

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Length: 42 p.
Date of creation: 2002
Date of revision:
Handle: RePEc:diw:diwwpp:dp303

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  1. Mark P. Taylor & Ronald MacDonald, 1991. "Exchange Rate Economics: A Survey," IMF Working Papers 91/62, International Monetary Fund.
  2. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
  3. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  4. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute, The.
  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. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall.
  7. Frederic S. Mishkin, 1992. "Anatomy of a Financial Crisis," NBER Working Papers 3934, National Bureau of Economic Research, Inc.
  8. Pablo Emilio Guidotti & Guillermo Calvo, 1991. "Speculative Attacks," IMF Working Papers 91/10, International Monetary Fund.
  9. 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.
  10. Connolly, Michael B & Taylor, Dean, 1984. "The Exact Timing of the Collapse of an Exchange Rate Regime and Its Impact on the Relative Price of Traded Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 194-207, May.
  11. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  12. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, vol. 105(429), pages 510-19, March.
  13. Sato, Shuhei, 1998. "Asian Financial Crisis," Japan and the World Economy, Elsevier, vol. 10(3), pages 371-375, July.
  14. Jeffrey Frankel & Sergio Schmukler, 1996. "Crisis, contagion, and country funds: effects on East Asia and Latin America," Pacific Basin Working Paper Series 96-04, Federal Reserve Bank of San Francisco.
  15. Jeffrey A. Frankel & Giampaolo Galli & Alberto Giovannini, 1996. "The Microstructure of Foreign Exchange Markets," NBER Books, National Bureau of Economic Research, Inc, number fran96-1, October.
  16. 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.
  17. Otker, Inci & Pazarbasioglu, Ceyla, 1997. "Speculative attacks and macroeconomic fundamentals: evidence from some European currencies," European Economic Review, Elsevier, vol. 41(3-5), pages 847-860, April.
  18. Calvo, Guillermo A, 1987. "Balance of Payments Crises in a Cash-in-Advance Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 19-32, February.
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