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An iron law of currency crisis: the divergence of the nominal and the real exchange rate and increasing current account deficits

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  • Siebert, Horst

Abstract

The currency crises of the 1990s all exhibit a divergence of the nominal and the real exchange rate together with an increase in the negative current account. The nominal rate does not reflect inflation differences fully and the ensuing real appreciation leads to a negative current account. This pattern holds for the Czech, the Mexican, Brazilian, Argentinian as well as the South Korean currency crises. It seems to be an iron law of currency crises.

Suggested Citation

  • Siebert, Horst, 2002. "An iron law of currency crisis: the divergence of the nominal and the real exchange rate and increasing current account deficits," Kiel Working Papers 1106, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1106
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    File URL: https://www.econstor.eu/bitstream/10419/2765/1/kap1106.pdf
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    Cited by:

    1. Ritter, Raymond, 2003. "Sudden Stops in Capital Inflows and the Design of Exchange Rate Regimes," HWWA Discussion Papers 213, Hamburg Institute of International Economics (HWWA).
    2. Ritter, Raymond, 2003. "Sudden Stops in Capital Inflows and the Design of Exchange Rate Regimes," Discussion Paper Series 26317, Hamburg Institute of International Economics.

    More about this item

    Keywords

    real exchange rate; devaluation; currency crisis;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F3 - International Economics - - International Finance

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