SFB 303 Discussion Paper No. B-418

Author: Weber, Axel A.
Title: Sources of Currency Crisis: An Empirical Analysis
Abstract: 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.
Keywords: exchange rates, speculation, fundamentals, currency crisis, purchasing, power parity, structural vector autoregression, impulse response
JEL-Classification-Number: F0, F3
Creation-Date: November 1997
URL: ../1997/b/bonnsfb418.pdf

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