Working Paper: CEPR ID: DP1060
Authors: Barry Eichengreen; Andrew K. Rose; Charles Wyplosz
Abstract: This paper presents an empirical analysis of speculative attacks on pegged exchange rates in 22 countries between 1967 and 1992. We define speculative attacks or crises as large movements in exchange rates, interest rates, and international reserves. We develop stylized facts concerning the univariate behaviour of a variety of macroeconomic variables, comparing crises with periods of tranquility. For ERM observations we cannot reject the null hypothesis that there are few significant differences in the behaviour of key macroeconomic variables between crisis and non-crisis periods. This null hypothesis can be decisively rejected for non-ERM observations, however. Precisely the opposite pattern is evident in the behaviour of actual realignments and changes in exchange rate regimes. We attempt to tie these findings to the theoretical literature on balance of payments crises.
Keywords: balance of payments crisis; speculative attack; ERM
JEL Codes: F31; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| budget deficits (H62) | speculative attacks (D84) |
| inflation rates (E31) | speculative attacks (D84) |
| credit growth (E51) | speculative attacks (D84) |
| trade balances (F10) | speculative attacks (D84) |
| speculative attacks (D84) | macroeconomic variables (E19) |
| realignments (F55) | macroeconomic variables (E19) |
| speculative attacks (D84) | higher inflation rates (E31) |
| speculative attacks (D84) | weaker trade balances (F14) |