Sources of Currency Crises: An Empirical Analysis
Universitaet Bonn, Sonderforschungsbereich 303 Discussion Paper #B-418
Posted: 18 Nov 1997
Date Written: October 1997
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: Suggested Citation