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What Causes Currency Crises: Sunspots, Contagion or Fundamentals?

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  • Fratzscher, M.

Abstract

This paper is an attempt to explain currency crises and exchange rate movements in open emerging markets during the 1990s. A model is developed that allows a systematic comparison and evaluation of three competing explanations for crises: weak economic fundamentals, contagion and sunspots, i.e. exogenous shifts in agents' beliefs.

Suggested Citation

  • Fratzscher, M., 1999. "What Causes Currency Crises: Sunspots, Contagion or Fundamentals?," Economics Working Papers eco99/39, European University Institute.
  • Handle: RePEc:eui:euiwps:eco99/39
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    References listed on IDEAS

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    13. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
    14. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 133-164, April.
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    Cited by:

    1. Adil NAAMANE, 2012. "Peut-on prévenir les crises financières ?," Working Papers 2011-2012_7, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised May 2012.
    2. Loaiza-Maya, Rubén Albeiro & Gómez-González, José Eduardo & Melo-Velandia, Luis Fernando, 2015. "Exchange rate contagion in Latin America," Research in International Business and Finance, Elsevier, vol. 34(C), pages 355-367.
    3. Marcel Fratzscher, 2003. "On currency crises and contagion," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(2), pages 109-129.
    4. Abdul d Abiad, 2003. "Early Warning Systems; A Survey and a Regime-Switching Approach," IMF Working Papers 03/32, International Monetary Fund.
    5. Paul De Grauwe & Isabel Vansteenkiste, 2007. "Exchange rates and fundamentals: a non-linear relationship?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(1), pages 37-54.
    6. Ivo Krznar, 2004. "Currency Crisis: Theory and Practice with Application to Croatia," Working Papers 12, The Croatian National Bank, Croatia.
    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.
    8. Masazumi Hattori, 2001. "A Survey on Recent Theories and Empirical Analyses Regarding Currency Crises -- The Role of Liquidity Provision as a Policy Measure in Currency Crisis Management --," Bank of Japan Working Paper Series International Department,, Bank of Japan.
    9. Marcello Pericoli & Massimo Sbracia, 2003. "A Primer on Financial Contagion," Journal of Economic Surveys, Wiley Blackwell, vol. 17(4), pages 571-608, September.
    10. Jianping Shi & Yu Gao, 2010. "A study on KLR financial crisis early-warning model," Frontiers of Economics in China, Springer;Higher Education Press, pages 254-275.
    11. Baur, Dirk G. & Fry, Renée A., 2009. "Multivariate contagion and interdependence," Journal of Asian Economics, Elsevier, vol. 20(4), pages 353-366, September.
    12. Dirk Baur & Renee Fry, 2006. "Endogenous Contagion - A Panel Data Analysis," CAMA Working Papers 2006-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    13. Jianping Shi & Yu Gao, 2010. "A Study on KLR Financial Crisis Early-Warning Model," Frontiers of Economics in China, Higher Education Press, vol. 5(2), pages 254-275, June.

    More about this item

    Keywords

    CURRENCIES ; PROJECTIONS ; MONETARY CRISIS;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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