Working Paper: CEPR ID: DP2704
Authors: Barry Eichengreen
Abstract: This Paper reconsiders the 1992/3 crisis in the European Monetary System in light of its emerging market successors. That episode was a predecessor of the Mexican and Asian crises in the sense that both capital movements and domestic financial fragility played important roles. The output effects of this currency crisis resemble those of the typical emerging market crisis as much as they do the more moderate effects of the typical industrial-country crisis, reflecting the influence of the aforementioned capital mobility and financial fragility. Leading indicator models, constructed using data from the Tequila and the Asian flu are shown to do a surprisingly good job at backcasting which European countries suffered currency instability in 1992/3, although these models also point to what was distinctive about the European case.
Keywords: emerging markets; EMS; financial crises; Europe
JEL Codes: E42; E44; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EMS crisis (H12) | Mexican and Asian crises (F31) |
| Capital movements (F21) | output effects during crises (F44) |
| Domestic financial fragility (F65) | output effects during crises (F44) |
| Financial deregulation and capital account liberalization (F65) | EMS crisis (H12) |
| Capital mobility (F20) | financial instability (F65) |
| Financial instability (F65) | crisis outcomes (H12) |
| EMS crisis (H12) | output losses (D57) |
| Mexican crisis (H12) | output losses (D57) |