Sources of Currency Crises: An Empirical Analysis

Universitaet Bonn, Sonderforschungsbereich 303 Discussion Paper #B-418

Posted: 18 Nov 1997

See all articles by Axel A. Weber

Axel A. Weber

University of Cologne - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 1997

Abstract

Two types of currency crisis models coexist in the literature: first generation models view speculative attacks as being caused by economic fundamentals which are inconsistent with a given parity. Second generation models claim self-fulfilling speculation as the main source of a currency crisis. Recent empirical research in international macroeconomics has attempted to distinguish between the sources of currency crises. This paper adds to this literature by proposing a new empirical approach to identifying the speculative and fundamental components of currency crises in the context of a structural vector autoregression model. Our results suggest that only for the French franc can a substantial speculative component be identified as a potential source of the 1992-93 ERM crisis.

JEL Classification: F0, F3

Suggested Citation

Weber, Axel A., Sources of Currency Crises: An Empirical Analysis (October 1997). Universitaet Bonn, Sonderforschungsbereich 303 Discussion Paper #B-418, Available at SSRN: https://ssrn.com/abstract=11107

Axel A. Weber (Contact Author)

University of Cologne - Department of Economics ( email )

Cologne, 50923
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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