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Currency crises and uncertainty about fundamentals

  • Alessandro Prati


    (IMF, Research Department)

  • Massimo Sbracia


    (Banca d�Italia, Economic Research Department)

This paper extends some theoretical results of Morris and Shin (1998) concerning the role of uncertainty about fundamentals in currency crises and tests their empirical relevance using a novel approach based on the distribution of survey expectations. Econometric evidence from the Asian crisis confirms the prediction that the dispersion of expectations affects the probability of a speculative attack and that the sign of this effect depends on whether expected fundamentals are "good" or "bad". Extensive robustness checks support the findings.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 446.

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Date of creation: Jul 2002
Date of revision:
Handle: RePEc:bdi:wptemi:td_446_02
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  1. Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, vol. 20(1-2), pages 143-156, February.
  2. Marc Klau & John Hawkins, 2000. "Measuring potential vulnerabilities in emerging market economies," BIS Working Papers 91, Bank for International Settlements.
  3. Dumas, B. & Svensson, L.E.O., 1991. "How Long do Unilateral Target Zones last?," Weiss Center Working Papers 1991-2, Wharton School - Weiss Center for International Financial Research.
  4. Ranil Salgado & Luca Antonio Ricci & Francesco Caramazza, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers 00/55, International Monetary Fund.
  5. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium Selection in Global Games with Strategic Complementarities," Staff General Research Papers 11920, Iowa State University, Department of Economics.
  6. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
  7. Hans Carlsson & Eric van Damme, 1993. "Global Games and Equilibrium Selection," Levine's Working Paper Archive 122247000000001088, David K. Levine.
  8. 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.
  9. Linda S. Goldberg, 1988. "Collapsing Exchange Rate Regimes: Shocks and Biases," NBER Working Papers 2702, National Bureau of Economic Research, Inc.
  10. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
  11. S. Morris & R. Rob & H. Shin, 2010. "p-dominance and Belief Potential," Levine's Working Paper Archive 505, David K. Levine.
  12. Catherine A. Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? A Test," IMF Working Papers 98/154, International Monetary Fund.
  13. Olivier Jeanne & Andrew K. Rose, 2002. "Noise Trading and Exchange Rate Regimes," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 537-569.
  14. Sbracia, M. & Zaghini, A., 2000. "Expectations and Information in Second Generation Currency Crises Models," Papers 391, Banca Italia - Servizio di Studi.
  15. Linda S. Goldberg, 1990. "Predicting Exchange Rate Crises: Mexico Revisited," NBER Working Papers 3320, National Bureau of Economic Research, Inc.
  16. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June.
  17. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-48, September.
  18. Jeanne, Olivier & Masson, Paul, 2000. "Currency crises, sunspots and Markov-switching regimes," Journal of International Economics, Elsevier, vol. 50(2), pages 327-350, April.
  19. Robin Brooks & Torsten Sløk & Manmohan S. Kumar & Hali J. Edison, 2001. "Exchange Rates and Capital Flows," IMF Working Papers 01/190, International Monetary Fund.
  20. Robert P. Flood & Nancy P. Marion, 1998. "Self-Fulfilling Risk Predictions: An Application to Speculative Attacks," IMF Working Papers 98/124, International Monetary Fund.
  21. Bryan R. Routledge & Stanley E. Zin, 2000. "Model Uncertainty and Liquidity," Econometric Society World Congress 2000 Contributed Papers 1617, Econometric Society.
  22. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers dp373, Financial Markets Group.
  23. Jeanne, Olivier, 1997. "Are currency crises self-fulfilling?: A test," Journal of International Economics, Elsevier, vol. 43(3-4), pages 263-286, November.
  24. Prakash Loungani, 2000. "How Accurate Are Private Sector Forecasts: Cross-Country Evidence From Consensus Forecasts of Output Growth," IMF Working Papers 00/77, International Monetary Fund.
  25. 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.
  26. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-21, January.
  27. Catherine A. Pattillo & Andrew Berg & Gian-Maria Milesi-Ferretti & Eduardo Borensztein, 2000. "Anticipating Balance of Payments Crises--The Role of Early Warning Systems: The Role of Early Warning Systems," IMF Occasional Papers 186, International Monetary Fund.
  28. Chan, Kenneth S. & Chiu, Y. Stephen, 2002. "The role of (non-)transparency in a currency crisis model," European Economic Review, Elsevier, vol. 46(2), pages 397-416, February.
  29. Don E. Roper & Stephen J. Turnovsky, 1980. "Optimal Exchange Market Intervention in a Simple Stochastic Macro Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 296-309, May.
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