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Determinants of Currency Crises: A Conflict of Generations?

Author

Listed:
  • Jesús Crespo Cuaresma

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

  • Tomáš Slacík

    () (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

Crespo Cuaresma and Slacík (2007) show that macroeconomic 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.

Suggested Citation

  • Jesús Crespo Cuaresma & Tomáš Slacík, 2008. "Determinants of Currency Crises: A Conflict of Generations?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 126-141.
  • Handle: RePEc:onb:oenbfi:y:2008:i:1:b:5
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    3. Matthieu Bussière, 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.
    4. Crespo Cuaresma, Jesús & Slacik, Tomas, 2009. "On the determinants of currency crises: The role of model uncertainty," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 621-632, December.
    5. Peltonen, Tuomas, 2006. "Are emerging market currency crises predictable? A test," Working Paper Series 571, European Central Bank.
    6. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
    7. 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.
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    10. 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.
    11. 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.
    12. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    13. repec:hrv:faseco:34721963 is not listed on IDEAS
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    Cited by:

    1. Ferrari, Stijn & Pirovano, Mara, 2015. "Early warning indicators for banking crises: a conditional moments approach," MPRA Paper 62406, University Library of Munich, Germany.
    2. Aaron Mehrotra & Tomáš Slacík, 2009. "Evaluating Inflation Determinants with a Money Supply Rule in Four Central and Eastern European EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 6-21.

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