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Currency crises and uncertainty about fundamentals

Author

Listed:
  • Alessandro Prati

    (IMF, Research Department)

  • Massimo Sbracia

    (Banca d�Italia, Economic Research Department)

Abstract

This paper extends some theoretical results of Morris and Shin (1998) concerning the role of uncertainty about fundamentals in currency crises and tests their empirical relevance using a novel approach based on the distribution of survey expectations. Econometric evidence from the Asian crisis confirms the prediction that the dispersion of expectations affects the probability of a speculative attack and that the sign of this effect depends on whether expected fundamentals are "good" or "bad". Extensive robustness checks support the findings.

Suggested Citation

  • Alessandro Prati & Massimo Sbracia, 2002. "Currency crises and uncertainty about fundamentals," Temi di discussione (Economic working papers) 446, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_446_02
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    References listed on IDEAS

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    More about this item

    Keywords

    speculative attack; exchange rate crisis; public and private information;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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