Currency Crashes in Emerging Markets: Empirical Indicators

30 Pages Posted: 7 Aug 2000 Last revised: 11 Nov 2022

See all articles by Jeffrey A. Frankel

Jeffrey A. Frankel

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Andrew Kenan Rose

University of California - Haas School of Business; NUS Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: January 1996

Abstract

We use a panel of annual data for over one hundred developing countries from 1971 through 1992 to characterize currency crashes. We define a currency crash as a large change of the nominal exchange rate that is also a substantial increase in the rate of change of nominal depreciation. We examine the composition of the debt as well as its level, and a variety of other macroeconomic factors, external and foreign. Crashes tend to occur when: output growth is low; the growth of domestic credit is high; and the level of foreign interest rates is high. A low ratio of FDI to debt is consistently associated with a high likelihood of a crash.

Suggested Citation

Frankel, Jeffrey A. and Rose, Andrew Kenan and Rose, Andrew Kenan, Currency Crashes in Emerging Markets: Empirical Indicators (January 1996). NBER Working Paper No. w5437, Available at SSRN: https://ssrn.com/abstract=225494

Jeffrey A. Frankel (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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Andrew Kenan Rose

NUS Business School ( email )

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