Are Currency Crises Predictable?

European Economic Review, April 1998

Posted: 18 Jun 1998

See all articles by Ilan Goldfajn

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

Rodrigo Valdés

Central Bank of Chile; Ministry of Finance, Chile

Multiple version iconThere are 3 versions of this paper


Note: Below is a description of the paper and not the actual abstract.

This paper studies whether exchange rate expectations and overvaluations are predictors of currency crises using survey data for 26 countries in the last 13 years. The results suggest that overvaluation has predictive power in explaining crises since it shows that real exchange rate misaligment is a good predictor even out-of-sample (i.e., using only past information to predict crises). Independently of the possible role of the real exchange rate, expectations should incorporate all information available, including other leading indicators, when predicting crises. However, the results show that expectations cannot predict crises. Therefore, from the perspective adopted in this paper, exchange rate crises are largely unpredictable events.

JEL Classification: F31, F33

Suggested Citation

Goldfajn, Ilan and Valdés, Rodrigo O., Are Currency Crises Predictable?. European Economic Review, April 1998. Available at SSRN:

Ilan Goldfajn (Contact Author)

Gávea Investimentos ( email )

Rua Dias Ferreira, 190 7th andar
22431-050 Rio de Janeiro

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453

Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia DF 70074-900, Distr. Federal 70074-900
61-4143232 (Phone)
61-2260767 (Fax)

Rodrigo O. Valdés

Central Bank of Chile ( email )

Agustinas 1180
Research Department
+56 2 670 2000 (Phone)
+56 2 670 2231 (Fax)

Ministry of Finance, Chile

Teatinos 120
Santiago, 8340487

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics