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On the Determinants of Currency Crises: The Role of Model Uncertainty

  • Jesús Crespo Cuaresma

    ()

    (Vienna University of Economics and Business, Institute for Fiscal and Monetary Policy)

  • Tomáš Slacík

    ()

    (Oesterreichische Nationalbank, Foreign Research Division)

In this contribution, we tackle explicitly the issue of model uncertainty in the framework of binary variable models of currency crises. Using Bayesian model averaging techniques, we assess the robustness of the explanatory variables proposed in the recent literature for both static and dynamic models. Our results indicate that the variables belonging to the set of macroeconomic fundamentals proposed by the literature are very fragile determinants of the occurrence of currency crises.

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File URL: https://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Focus-on-European-Economic-Integration/2007/Focus-on-European-Economic-Integration-Q2-07/chapters/feei_2007_2_cuaresma_slacik_tcm16-79069.pdf
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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2007)
Issue (Month): 2 ()
Pages: 54-68

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Handle: RePEc:onb:oenbfi:y:2007:i:2:b:1
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  1. Bussiere, Matthieu & Fratzscher, Marcel, 2006. "Towards a new early warning system of financial crises," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 953-973, October.
  2. Carmen Fernandez & Eduardo Ley & Mark Steel, 1999. "Model uncertainty in cross-country growth regressions," Econometrics 9903003, EconWPA, revised 06 Oct 2001.
  3. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  4. Crespo Cuaresma, Jesus & Doppelhofer, Gernot, 2007. "Nonlinearities in cross-country growth regressions: A Bayesian Averaging of Thresholds (BAT) approach," Journal of Macroeconomics, Elsevier, vol. 29(3), pages 541-554, September.
  5. Peltonen, Tuomas A., 2006. "Are emerging market currency crises predictable? A test," Working Paper Series 0571, European Central Bank.
  6. Jesús Crespo Cuaresma & Tomáš Slacík, 2007. "Predicting Currency Crises Using the Term Structure of Relative Interest Rates: Case Studies of the Czech Republic and Russia," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 135-149.
  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. Paul Krugman, 1996. "Are Currency Crises Self-Fulfilling?," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 345-407 National Bureau of Economic Research, Inc.
  9. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  10. Bussière, Matthieu, 2007. "Balance of payment crises in emerging markets: how early were the “early” warning signals?," Working Paper Series 0713, European Central Bank.
  11. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
  12. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  13. William A. Brock & Steven N. Durlauf & Kenneth D. West, 2003. "Policy Evaluation in Uncertain Economic Environments," NBER Working Papers 10025, National Bureau of Economic Research, Inc.
  14. Doppelhofer, G. & Weeks, M., 2005. "Jointness of Growth Determinants," Cambridge Working Papers in Economics 0542, Faculty of Economics, University of Cambridge.
  15. Abdul Abiad, 2003. "Early Warning Systems; A Survey and a Regime-Switching Approach," IMF Working Papers 03/32, International Monetary Fund.
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