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Currency crashes in emerging markets: an empirical treatment

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  • Jeffrey A. Frankel
  • Andrew K. Rose

Abstract

We use a panel of annual data for over one hundred developing countries from 1971 through 1992 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 the nominal depreciation. We examine the composition of the debt as well as its level, and a variety of other macroeconomic, external and foreign factors. Our factors are significantly related to crash incidence, especially output growth, the rate of change of domestic credit, and foreign interest rates. A low ratio of FDI to debt is consistently associated with a high likelihood of a crash.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 534.

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Date of creation: 1996
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Handle: RePEc:fip:fedgif:534

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Keywords: Money;

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  1. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
  2. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  3. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  4. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
  5. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
  6. Julio A. Santaella, 1995. "Four Decades of Fund Arrangements - Macroeconomic Stylized Facts Before the Adjustment Programs," IMF Working Papers 95/74, International Monetary Fund.
  7. 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.
  8. 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.
  9. Connolly, Michael, 1986. "The speculative attack on the peso and the real exchange rate: Argentina, 1979-1981," Journal of International Money and Finance, Elsevier, vol. 5(1, Supple), pages S117-S130, March.
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  1. The 2008-09 Global Financial Crisis: Lessons for Country Vulnerability
    by jfrankel in Jeff Frankels Weblog on 2011-09-18 16:12:58
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