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Common shocks and currency crises

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  • Ramon Moreno
  • Bharat Trehan

Abstract

This paper attempts to determine the extent to which common external shocks explain simultaneous currency crises. We define crises on a country by country basis using a new criterion that takes into account variations in the volatility of exchange rates over time and across countries. Using a Poisson regression model, we find that over the post-Bretton woods period, a small number of common external shocks can explain between sixty to eighty percent of the variation in the total number of crises over time, depending upon the set of countries one looks at. Our findings provide one explanation of why currency crises sometimes bunch together and sometimes do not.

Suggested Citation

  • Ramon Moreno & Bharat Trehan, 2000. "Common shocks and currency crises," Working Paper Series 2000-05, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2000-05
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    File URL: http://www.frbsf.org/econrsrch/workingp/2000/wp00-05.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ramon Moreno, 2001. "Pegging and stabilization policy in developing countries," Economic Review, Federal Reserve Bank of San Francisco, pages 17-29.
    2. Beckmann, Daniela & Menkhoff, Lukas & Sawischlewski, Katja, 2006. "Robust lessons about practical early warning systems," Journal of Policy Modeling, Elsevier, vol. 28(2), pages 163-193, February.
    3. Ramon Moreno, 2001. "Capital controls and emerging markets," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug31.

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    Keywords

    Money ; Financial crises;

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