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Modeling currency instability: The 1997 Asian crisis re-examined

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  • Inchauspe, Julian

Abstract

The 1997 Asian crisis triggered major breakthroughs in ways in which financial vulnerability, and in particular currency crises, are modeled and explained. This paper discusses some of these developments in three steps. First, a stylized simple model explaining self-fulfilling crises is presented. Secondly, this model is used as a framework to analyze hypotheses which are often found in the literature and their implications for financial instability. The third contribution involves the application of Markov-switching multivariate techniques to empirically examine the main model. Inter alia, issues such as information structure, expectations, coordination failure, sunspots, financial regulations and contagion are explored.

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  • Inchauspe, Julian, 2008. "Modeling currency instability: The 1997 Asian crisis re-examined," MPRA Paper 93050, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:93050
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    References listed on IDEAS

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    More about this item

    Keywords

    currency crisis; Asian crisis; self-fulfilling; multiple equilibria; financial instability; Markov-switching.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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