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Money and credit, competitiveness, and currency crises in Asia and Latin America

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  • Reuven Glick
  • Ramon Moreno

Abstract

This paper analyzes the role of money, credit, trade and competitiveness variables in signaling currency crises in a sample of East Asian and Latin American countries over the period 1972:01 - 1997:10. Bivariate tests suggest that money and credit, as well as trade and competitiveness variables, appear to behave differently around crisis episodes than they do during periods of tranquility, suggesting that they may help signal currency crises. In multivariate probit regressions, which allow for the identification of marginal contributions of individual variables, reductions in real domestic credit and in foreign reserves as well as appreciation in the real exchange rate imply increases in the probability of a crisis. Real exchange rate appreciation appears to play a greater role in predicting currency crises in East Asia, while foreign reserve losses play a greater role in Latin America.

Suggested Citation

  • Reuven Glick & Ramon Moreno, 1999. "Money and credit, competitiveness, and currency crises in Asia and Latin America," Pacific Basin Working Paper Series 99-01, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfpb:99-01
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    Cited by:

    1. Roberta De Santis, 2004. "Has Trade Structure Any Importance in the Trasmission of Currency Shocks? An Empirical Application for Central and Eastern European Acceding Countries to Eu," ISAE Working Papers 43, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    2. Gerardo Esquivel & Felipe Larraín, 1999. "Currency Crises: Is Central America Different?," CID Working Papers 26, Center for International Development at Harvard University.
    3. Eleftherios Giovanis, 2010. "Application of logit model and self-organizing maps (SOMs) for the prediction of financial crisis periods in US economy," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 2(2), pages 98-125, June.
    4. Steven B. Kamin & Oliver D. Babson, 1999. "The contributions of domestic and external factors to Latin American devaluation crises: an early warning systems approach," International Finance Discussion Papers 645, Board of Governors of the Federal Reserve System (U.S.).
    5. Reuven Glick & Michael M. Hutchison, 1999. "Banking and currency crises; how common are twins?," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    6. Andrea Bubula & Inci Ötker, 2003. "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Papers 03/223, International Monetary Fund.
    7. Charles Goodhart & Lavan Mahadeva & John Spicer, 2003. "Monetary policy's effects during the financial crises in Brazil and Korea," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 55-79.
    8. Ramon Moreno, 1998. "Was there a boom in money and credit prior to East Asia's recent currency crisis?," Pacific Basin Working Paper Series 98-05, Federal Reserve Bank of San Francisco.
    9. S. DeVicerte & P. Alvarez & J. Perez & C. Caso, 2008. "Does currency crisis identification matter?," Applied Financial Economics, Taylor & Francis Journals, vol. 18(5), pages 387-395.
    10. Lin, Chin-Shien & Khan, Haider A. & Chang, Ruei-Yuan & Wang, Ying-Chieh, 2008. "A new approach to modeling early warning systems for currency crises: Can a machine-learning fuzzy expert system predict the currency crises effectively?," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1098-1121, November.
    11. Arias, Guillaume & Erlandsson, Ulf, 2004. "Regime switching as an alternative early warning system of currency crises - an application to South-East Asia," Working Papers 2004:11, Lund University, Department of Economics.
    12. Ramon Moreno, 1999. "Depreciation and recessions in East Asia," Economic Review, Federal Reserve Bank of San Francisco, pages 27-40.
    13. Ramon Moreno, 1999. "Did a boom in money and credit precede east Asia's recent currency crisis?," Economic Review, Federal Reserve Bank of San Francisco, pages 23-41.
    14. Niemira, Michael P. & Saaty, Thomas L., 2004. "An Analytic Network Process model for financial-crisis forecasting," International Journal of Forecasting, Elsevier, vol. 20(4), pages 573-587.
    15. Mete Feridun, 2006. "Impact of Liquidity on Speculative Pressure in the Exchange Market," Discussion Paper Series 2006_24, Department of Economics, Loughborough University, revised Dec 2006.
    16. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Staff Working Papers 03-14, Bank of Canada.
    17. Steven B. Kamin & John W. Schindler & Shawna L. Samuel, 2001. "The contribution of domestic and external factors to emerging market devaluation crises: an early warning systems approach," International Finance Discussion Papers 711, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Money ; Competition;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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