Currency Crises in Asia and Latin America: A Comparison

In the second half of the 1990s, many Asian and Latin American countries suffered from the currency crises. But the causes and processes of currency crisis are not necessarily the same, though there are many common aspects. The purpose of this paper is to compare the currency crises in both regions paying attention on the inconsistent macroeconomic policies under the rapid liberalization. We first build a theoretical model in which both macro fundamentals and agents' expectations are to play crucial roles. The model implies that a deterioration of macro fundamentals would increase the possibility of currency crisis through changes in behavioral patterns of private agents and government. We then compare the macro fundamentals of the five crisis countries in Asia and Latin America. Among other macro fundamentals, we focus on the soundness of banking sector as one of the most important factors that made the crisis process different in two regions. Finally we examine the future tasks for these countries to stabilize the currencies.