Calvo, Guillermo A. (1997), “Varieties of Capital Market Crises,” in G.A. Calvo and Mervyn King (eds.), The Debt Burden and its Consequences for Monetary Policy (London: St. Martin’s Press).
Calvo, Guillermo A., Leonardo Leiderman and Carmen M. Reinhart (1993), “Capital Inflows and Real Exchange Rate Appreciation in Latin America: the Role of External Factors,” IMF Staff Papers 40 (March), pp. 108–151.
Calvo, Guillermo A. and Enrique Mendoza (1996), “Rational Contagion and the Globalization of Securities’ Markets” (unpublished; Maryland: University of Maryland).
Cashin, Paul, and C. John McDermott (1996), “Are Australia’s Current Account Deficits Excessive?” IMF Working Paper no. 96/85 (Washington: International Monetary Fund), forthcoming, Economic Record.
Corbo, Vittorio, and Leonardo Hernández (1996), “Macroeconomic Adjustment to Capital Inflows: Lessons from Recent East Asian and Latin American Experience,” World Bank Research Observer 11 (February), pp. 61–85.
Cottarelli, Carlo and Curzio Giannini (1997), “Credibility Without Rules? Monetary Frameworks in the Post-Bretton Woods Era,” IMF Occasional Paper 154, December, (Washington: International Monetary Fund).
Debelle, Guy and Hamid Faruqee (1996), “What Determines the Current Account? A Cross-Sectional and Panel Approach,” IMF Working Paper 96/58 (Washington, International Monetary Fund).
Demirgüç-Kunt, Asli and Enrica Detragiache (1997), “The Determinants of Banking Crises: Evidence from Developing and Developed Countries,” IMF Working Paper No. 97/106 (Washington, International Monetary Fund).
Dornbusch, Rudiger, Ilan Goldfajn, and Rodrigo Valdes (1995), “Currency Crises and Collapses,” Brookings Papers on Economic Activity 2, pp. 219–293.
Eichengreen, Barry, Andrew K. Rose, and Charles Wyplosz (1995), “Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks,” Economic Policy 21 (October), pp. 249–312.
Eichengreen, Barry, Andrew K. Rose, and Charles Wyplosz (1996), “Contagious Currency Crises,” CEPR Discussion Paper 1453 (August).
Fernández-Arias, Eduardo (1996), “The New Wave of Private Capital Inflows: Push or Pull?” Journal of Development Economics 48, pp. 389–418.
Fernández-Arias, Eduardo, and Peter Monitel (1996), “The Surge in Capital Inflows to Developing Countries: an Analytical Overview,” World Bank Economic Review 10 (January), pp. 51–77 (Washington: World Bank)
Flood, Robert and Peter Garber (1984), “Collapsing Exchange Rate Regimes: Some Linear Examples,” Journal of International Economics 17, pp. 1–13.
Frankel, Jeffrey A., and Andrew K. Rose (1996), “Currency Crashes in Emerging Markets: An Empirical Treatment,” Journal of International Economics 41 (November), pp. 351–66.
Jeanne, Olivier (1997), “Are Currency Crises Self-Fulfilling? A Test,” Journal of International Economics 43 No. 3/4, pp. 163–86.
Kaminsky, Graciela, Saul Lizondo and Carmen M. Reinhart (1998), “Leading Indicators of Currency Crises,” IMF Staff Papers 45 (March), 1–48.
Klein, Michael W. And Nancy P. Marion (1997), “Explaining the Duration of Exchange-Rate Pegs,” Journal of Development Economics 54, December, 387–404.
Knight, Malcolm A. and Julio A. Santaella (1997), “Economic Determinants of IMF Financial Arrangements,” Journal of Development Economics 54 No. 2, pp. 405–36.
Kraay, Aart and Jaume Ventura (1997), “Current Accounts in Debtor and Creditor Countries,” July (unpublished; Washington: World Bank and Cambridge, Mass.: MIT).
Lane, Philip and Roberto Perotti (1998), “The Trade Balance and Fiscal Policy in the OECD,” European Economic Review, April (forthcoming).
Masson, Paul (1998), “Contagion: Monsoonal Effects, Spillovers, and Jumps Between Multiple Equilibria,” January (unpublished; Washington: International Monetary Fund).
Milesi-Ferretti, Gian Maria, and Assaf Razin (1996a), Current Account Sustainability, Princeton Studies in International Finance No. 81, October.
Milesi-Ferretti, Gian Maria, and Assaf Razin (1996b), “Current Account Sustainability: Selected East Asian an Latin American Experiences,” NBER Working Paper No. 5791, October.
Milesi-Ferretti, Gian Maria and Assaf Razin (1998), “Sharp Reductions in Current Account Deficits: An Empirical Analysis,” European Economic Review, April.
Sachs, Jeffrey (1981), “The Current Account and Macroeconomic Adjustment in the 1970s,” Brookings Papers on Economic Activity, pp. 201–68.
Sachs, Jeffrey (1982), “The Current Account in the Macroeconomic Adjustment Process,” Scandinavian Journal of Economics 84 No. 2, pp. 147–159.
Sachs, Jeffrey, Aaron Tornell, and Andrés Velasco (1996), “Financial Crises in Emerging Markets: Lessons from 1995,” Brookings Papers on Economic Activity 1, pp. 147–98.
Santaella, Julio A. (1996), “Stylized Facts Before IMF-Supported Macroeconomic Adjustment,” IMF Staff Papers 43 (September), pp. 502–44.
Tornell, Aaron and Philip Lane (1998), “Are Windfalls a Curse? A Non-Representative Agent Model of the Current Account and Fiscal Policy,” Journal of International Economics 44, February, 83–112.
Wyplosz, Charles (1986), “Capital Controls and Balance-of-Payments Crises,” Journal of International Money and Finance 5 (June), pp. 167–79.
Assaf Razin is Professor of Economics at Tel-Aviv University. This paper was prepared for the NBER conference on Currency Crises held in Cambridge, February 6–7, 1998. The authors thank their discussant Jaume Ventura as well as Enrica Detragiache, Pietro Garibaldi, Michael Mussa, Eswar Prasad and participants to the conference and to seminars at the IMF, New York University and Princeton University for useful comments. They are also grateful to Andy Rose for sharing his STATA programs, and to Yael Edelman and especially Maria Costa for excellent research assistance. Work for the conference was supported in part by a grant to the NBER from the Center for International Political Economy.
The fact that the attack is self-fulfilling does not, of course, mean that fundamentals do not matter; indeed, in these models there is a range of “good” fundamentals that rule out speculative attacks.
Contagion effects, broadly defined, can (but need not) have “fundamental” origins; for example, a large depreciation in a country can imply a loss of competitiveness and a decline in external demand for a neighboring country. Eichengreen et al. (1996) try empirically to distinguish between different types of contagion.
Kraay and Ventura (1997) argue that a debtor country may actually reduce its current account deficit in response to a negative transitory income shock, as the reduction in wealth leads to a reduction in the share of wealth allocated to foreign assets (which is negative in a debtor country). Tornell and Lane (1998) show that in the presence of a “common pool” problem, a positive terms-of-trade shock can induce a more-than-proportional increase in spending and a worsening of the current account.
These countries had income per capita (Summers and Heston definition) above $1,500 and population above 1 million in 1985, as well as an average current account deficit during the sample period below 10 % of GDP.
For the CPI-based real effective exchange rate (period average =100), an increase represents a real appreciation. The degree of real overvaluation, calculated using a bilateral rate vis-à-vis the U.S. dollar, is for every country the percentage deviation from the country’s sample average, as in Frankel and Rose (1996). Goldfajn and Valdés (1996) study the dynamics of real exchange rate appreciations and the probability of their “unwinding”.
For the terms of trade index, we take for each country the average value over the sample to equal 100. An increase in the index represents an improvement in the terms of trade.
Note that several oil-producing countries in the Middle-East (such as Iraq, Saudi Arabia, Kuwait, UAE, Bahrein) are excluded from the sample.
Frankel and Rose (1996) do not subtract the mean of the tranquil period, so as to provide information about the average level of a variable. We chose to de-mean variables so as to sharpen the graphical presentation.
One potential problem with this methodology is that the time distribution of reversal episodes is concentrated in the 1980s, and therefore the characteristics of reversal events we identify are in part influenced by the characteristics of the 1980s with respect to the 1970s and the 1990s. However, the graphs restricted to the 1980s show the same overall pattern as Figure 1.
Results using the degree of overvaluation (OVERVAL) instead of RER, are analogous.
In Milesi-Ferretti and Razin (1998) we grouped events occurring in adjacent years for the same country, counting them as a single, longer-lasting reversal.
All averages are calculated over the 3-year period preceding the reversal. The percentage change in the terms of trade between the two periods was statistically insignificant and was excluded from the regression so as to increase sample size.
The effects of ‘windowing” account for the CRISIS2 episodes that are not also CRISIS1.
Technically, the Islamic Federal Republic of Comoros uses a different currency, the CV, which is tied to the French franc in an analogous fashion to the CFA.
The regressions using RESM2 instead of RES are not reported, but available from the authors. Klein and Marion (1997) report similar results using the ratio of reserves to M1 for a sample of Latin American countries.
A potential problem with this finding is that the definition of the benchmark as the sample average implies a tendency for mean reversion.
Klein and Marion (1997) find that openness significantly reduces the likelihood of a devaluation in a sample of Latin American countries pegging their exchange rate.
The definition of crisis does not affect significantly the selection of reversal episodes preceded by a crisis. For example, for 3% non-adjacent reversals (excluding transfers) and non-adjacent crises (second line of data in Table 8), 22 of the crises episodes that precede reversals are the same regardless of the crisis definition.
This is partly a reflection of the fact that more currency crashes happened in Latin America than in Asia (Table 4).
The Table does not include CRISIS2; growth would be intermediate between CRISIS1 and CRISIS3.