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Perspectives on the Recent Currency Crisis Literature

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  • Flood, Robert
  • Marion, Nancy

Abstract

In the 1990s, currency crises in Europe, Mexico and Southeast Asia have drawn worldwide attention to speculative attacks on government-controlled exchange rates. To improve our understanding of these events, researchers have undertaken new theoretical and empirical work. In this paper, we provide some perspective on this work and relate it to earlier research in the area. Then we derive the optimal commitment to a fixed exchange rate and propose a common framework for analyzing currency crises that draws from both the first-generation work and the more recent second-generation approach. The cross-generational framework stresses the important role of speculators and also recognizes that the government's commitment to a fixed exchange rate is constrained by other policy goals. In the final section we study the crisis prediction literature and find that some crises may be particularly difficult to predict using currently popular methods. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Flood, Robert & Marion, Nancy, 1999. "Perspectives on the Recent Currency Crisis Literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-26, January.
  • Handle: RePEc:ijf:ijfiec:v:4:y:1999:i:1:p:1-26
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    1. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
    2. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
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    4. Velasco, Andres, 1987. "Financial crises and balance of payments crises : A simple model of the southern cone experience," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 263-283, October.
    5. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    6. Willman, Alpo, 1987. "Speculative attacks on the currency with uncertain monetary policy reactions," Economics Letters, Elsevier, vol. 25(1), pages 75-78.
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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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