Output Costs of Currency and Balance of Payments Crises in Emerging Markets

UCSC Dept. of Econ. Working Paper No. 486

28 Pages Posted: 28 Oct 2001

See all articles by Michael M. Hutchison

Michael M. Hutchison

University of California, Santa Cruz - Department of Economics

Date Written: September 2001

Abstract

We investigate the output effects of severe currency crises in emerging markets. Using a panel data set over the 1975-97 period and covering 24 emerging-market economies, we find that currency and balance of payments crises?even after controlling for other factors?reduce output by about 5-8 percent over a two-three year period. This adverse effect is two to four times larger than the average output loss in a developing economy. Typically, growth tends to return to trend by the third year following the crisis. The large output costs are likely related to their dependence on private capital markets and abrupt reversals in capital inflows that in turn force substantial real-side adjustment.

JEL Classification: E63, F34, F41, O19

Suggested Citation

Hutchison, Michael M., Output Costs of Currency and Balance of Payments Crises in Emerging Markets (September 2001). UCSC Dept. of Econ. Working Paper No. 486. Available at SSRN: https://ssrn.com/abstract=288721 or http://dx.doi.org/10.2139/ssrn.288721

Michael M. Hutchison (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Social Sciences I
Santa Cruz, CA 95064
United States
831-459-2600 (Phone)
831-459-5900 (Fax)

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