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Determinants of Currency Crises: A Conflict of Generations?

Author

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  • Jesús Crespo Cuaresma

    (Vienna University of Economics and Business, Institute for Fiscal and Monetary Policy)

  • Tomáš Slacík

    (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

Crespo Cuaresma and Slacík (2007) show that macroeconomic fundamentals are rather fragile determinants of currency crises under model uncertainty. The objective of the present follow-up study is to search for empirical support for the first- and second-generation models of currency crises in emerging economies using a larger dataset that includes crisis episodes of the 1980s and 1990s, while explicitly taking into account model uncertainty in a Bayesian manner. In line with the propositions made in the theoretical literature, our results suggest that crisis episodes in the 1980s were driven predominantly by adverse developments of macroeconomic fundamentals, while the results for crises in the 1990s might well be interpreted as empirical support for the second-generation type of crises. In addition, our estimation results stand in contradiction to the popular bipolar view and suggest that de facto intermediate exchange rate arrangements considerably reduce the risk of a speculative currency attack.

Suggested Citation

  • Jesús Crespo Cuaresma & Tomáš Slacík, 2008. "Determinants of Currency Crises: A Conflict of Generations?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 126-141.
    • Handle: RePEc:onb:oenbfi:y:2008:i:1:b:5
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    References listed on IDEAS

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    4. Aaron Mehrotra & Tomáš Slacík, 2009. "Evaluating Inflation Determinants with a Money Supply Rule in Four Central and Eastern European EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 6-21.
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    6. Dapontas Dimitrios, 2012. "Were the Currency Crises in Eastern Europe (1995-2008) Predictable? An Empirical Approach," Scientific Annals of Economics and Business, Sciendo, vol. 59(2), pages 15-28, December.

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