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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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File URL: http://www.federalreserve.gov/pubs/ifdp/1996/534/ifdp534.pdf
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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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References

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  1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  2. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank.
  3. 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.
  4. Jeffrey A. Frankel & Shang-Jin Wei, 1992. "Yen bloc or dollar bloc: exchange rate policies of the East Asian economies," Pacific Basin Working Paper Series 93-01, Federal Reserve Bank of San Francisco.
  5. 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.
  6. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  7. 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.
  8. Julio A. Santaella, 1995. "Four Decades of Fund Arrangements - Macroeconomic Stylized Facts Before the Adjustment Programs," IMF Working Papers 95/74, International Monetary Fund.
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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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