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Determinants of Currency Crises: A Conflict of Generations?

  • Jesús Crespo Cuaresma

    ()

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

  • Tomáš Slacík

    ()

    (Oesterreichische Nationalbank, Foreign Research Division)

Crespo Cuaresma and Slacík (2007) show that macroeconomic cík fundamentals are rather fragile determinants of currency crises under model uncertainty. The objective of the present follow-up study is to search for empirical support for the first- and second-generation models of currency crises in emerging economies using a larger dataset that includes crisis episodes of the 1980s and 1990s, while explicitly taking into account model uncertainty in a Bayesian manner. In line with the propositions made in the theoretical literature, our results suggest that crisis episodes in the 1980s were driven predominantly by adverse developments of macroeconomic fundamentals, while the results for crises in the 1990s might well be interpreted as empirical support for the second-generation type of crises. In addition, our estimation results stand in contradiction to the popular bipolar view and suggest that de facto intermediate exchange rate arrangements considerably reduce the risk of a speculative currency attack.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Focus-on-European-Economic-Integration/2008/Focus-on-European-Economic-Integration-Q1-08/chapters/feei_2008_1_cuaresma_tcm16-86737.pdf
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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2008)
Issue (Month): 1 ()
Pages: 126-141

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Handle: RePEc:onb:oenbfi:y:2008:i:1:b:5
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  1. Jesus Crespo Cuaresma & Tomas Slacik, . "On the determinants of currency crises: The role of model uncertainty," Working Papers 2008-03, Faculty of Economics and Statistics, University of Innsbruck.
  2. Robin Brooks & Kenneth Rogoff & Ashoka Mody & Nienke Oomes & Aasim M. Husain, 2004. "Evolution and Performance of Exchange Rate Regimes," IMF Occasional Papers 229, International Monetary Fund.
  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.
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  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  7. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  8. Matthieu Bussi�re, 2013. "Balance of payment crises in emerging markets: how early were the ‘early’ warning signals?," Applied Economics, Taylor & Francis Journals, vol. 45(12), pages 1601-1623, April.
  9. 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.
  10. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  11. Jarko Fidrmuc, 2003. "The Feldstein–Horioka Puzzle and Twin Deficits in Selected Countries," Economic Change and Restructuring, Springer, vol. 36(2), pages 135-152, June.
  12. Peltonen, Tuomas A., 2006. "Are emerging market currency crises predictable? A test," Working Paper Series 0571, European Central Bank.
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