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Currency Crises: Is Central America Different?

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  • Gerardo Esquivel
  • Felipe Larraín

Abstract

In a recent paper we analyzed the determinants of currency crises in a sample of 30 high and middle income countries (Esquivel and Larraín, 1998). In this work we focus on Central America and analyze whether the determinants of currency crises in this region are different from those identified in our previous work. We conclude that they are not, and show that a small set of macroeconomic variables helps to explain the currency crises that took place in Central America between 1976 and 1996. The results of tests applied here support the empirical approach that attempts to explain currency crises by focusing on the behavior of a few macroeconomic indicators. Part of the interest of this result stems from the fact that the Central American countries had an exchange rate system markedly different from that prevailing in the economies that are usually analyzed in similar studies.

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Bibliographic Info

Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number 26.

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Date of creation: Sep 1999
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Handle: RePEc:wop:cidhav:26

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Keywords: Central America; exchange rate; currency crises; financial crises;

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  1. José Antonio Ocampo, 1991. "Collapse and (Incomplete) Stabilization of the Nicaraguan Economy," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 331-368 National Bureau of Economic Research, Inc.
  2. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
  3. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  4. 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.
  5. Allan Drazen, 2000. "Political Contagion in Currency Crises," NBER Chapters, in: Currency Crises, pages 47-67 National Bureau of Economic Research, Inc.
  6. Reuven Glick & Andrew K. Rose, 1998. "Contagion and Trade: Why Are Currency Crises Regional?," NBER Working Papers 6806, National Bureau of Economic Research, Inc.
  7. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
  8. Glick, R. & Moreno, R., 1999. "Money and Credit, Competitiveness, and Currency Crises in Asia and Latin America," Papers 99-01, Economisch Institut voor het Midden en Kleinbedrijf-.
  9. Nancy P. Marion & Robert P. Flood, 1998. "Perspectiveson the Recent Currency Crisis Literature," IMF Working Papers 98/130, International Monetary Fund.
  10. Pesaran, M Hashem & Timmermann, Allan, 1992. "A Simple Nonparametric Test of Predictive Performance," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 561-65, October.
  11. Rodrigo O. Valdés & Ilan Goldfajn, 1997. "Are Currency Crises Predictable?," IMF Working Papers 97/159, International Monetary Fund.
  12. Paul R. Masson, 1998. "Contagion," IMF Working Papers 98/142, International Monetary Fund.
  13. Sebastian Edwards & Fernando J. Losada, 1994. "Fixed Exchange Rates, Inflation and Macroeconomic Discipline," NBER Working Papers 4661, National Bureau of Economic Research, Inc.
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Cited by:
  1. Beckmann, Daniela & Menkhoff, Lukas & Sawischlewski, Katja, 2006. "Robust lessons about practical early warning systems," Journal of Policy Modeling, Elsevier, vol. 28(2), pages 163-193, February.

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