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Distinguishing between observationally equivalent theories of crises

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Author Info
Shankar, Rashmi

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Abstract

The objective of this paper is to empirically test across alternative, apparently observationally equivalent theories of currency crises. Theories of crises are often difficult to distinguish from each other based on the behavior of commonly used predictors. Using a comprehensive data set on gross external assets and liabilities for 167 countries created bythe World Bank's Latin America and the Caribbean Region and the Development Research Group, this study is able to make a significant move toward redressing this shortcoming. It focuses on identifying potential crisis predictors, as well as testing the validity of the distinct transmission mechanisms implied by various theories of currency crisis. Evidence is presented in support of insurance-based models, suggesting that proxies for contingent liability accumulation are effective crisis predictors.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2926.

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Date of creation: 30 Nov 2002
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Handle: RePEc:wbk:wbrwps:2926

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Keywords: Economic Theory&Research; Fiscal&Monetary Policy; International Terrorism&Counterterrorism; Payment Systems&Infrastructure; Banks&Banking Reform; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; International Terrorism&Counterterrorism; Financial Crisis Management&Restructuring;

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    Other versions:
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  7. Maurice Obstfeld, 1991. "The Effectiveness of Foreign-Exchange Intervention: Recent Experience," NBER Working Papers 2796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. 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.). [Downloadable!]
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  11. Meese, Richard A & Rose, Andrew K, 1991. "An Empirical Assessment of Non-linearities in Models of Exchange Rate Determination," Review of Economic Studies, Blackwell Publishing, vol. 58(3), pages 603-19, May. [Downloadable!] (restricted)
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  12. Inci Ötker & Ceyla Pazarbasioglu, 1994. "Exchange Market Pressures and Speculative Capital Flows in Selected European Countries," IMF Working Papers 94/21, International Monetary Fund.
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