The Role of Large Players in Currency Crises

71 Pages Posted: 17 May 2001 Last revised: 22 Oct 2010

See all articles by Giancarlo Corsetti

Giancarlo Corsetti

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

Paolo A. Pesenti

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2001

Abstract

During recent episodes of financial turmoil some policy makers voiced concerns about aggressive, and possibly manipulative, practices by highly leveraged institutions in emerging markets. This paper addresses these concerns by reconsidering in detail, at both theoretical and empirical levels, the role of large players in currency crises. The first part of the study discusses analytical results from different models of speculative attack, suggesting that the presence of agents with market power can increase a country's vulnerability to a crisis and make other investors more aggressive in their position-taking. Both size and reputation for quality of information matter in determining large players' impact on the market. The second part of the study presents evidence on the correlation between exchange rate movements and major market participants' net currency positions, and delves into a comparative analysis of several recent crisis episodes in Thailand, Hong Kong, Malaysia, Australia, and South Africa in light of the previous theoretical results.

Suggested Citation

Corsetti, Giancarlo and Pesenti, Paolo A. and Roubini, Nouriel, The Role of Large Players in Currency Crises (May 2001). NBER Working Paper No. w8303. Available at SSRN: https://ssrn.com/abstract=270373

Giancarlo Corsetti (Contact Author)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
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Italy

University of Rome III - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Paolo A. Pesenti

Federal Reserve Bank of New York ( email )

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212-720-5493 (Phone)
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National Bureau of Economic Research (NBER)

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Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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New York, NY 10003
United States
212-998-0886 (Phone)
212-995-4218 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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