Working Paper: NBER ID: w10193
Authors: Graciela L. Kaminsky
Abstract: The plethora of currency crises around the world has fueled many theories on the causes of speculative attacks. The first-generation models focus on fiscal problems. The second-generation models emphasize countercyclical policies and self-fulfilling crises. In the 1990s, models pinpoint to financial excesses. With the crisis of Argentina in 2001, models of sovereign default have become popular again. While the theoretical literature has emphasized variety, the empirical literature has supported the one size fits all' models. This paper contributes to the empirical literature by assessing whether the crises of the last thirty years are of different varieties. Crises are found to be of six varieties. Four of those varieties are associated with domestic economic fragility. But crises can also be provoked by just adverse world market conditions, such as the reversal of international capital flows. The so-called sudden-stop phenomenon identifies the fifth variety of crises. Finally, a small number of crises occur in economies with immaculate fundamentals but this type of crises is not an emerging-market phenomenon.
Keywords: No keywords provided
JEL Codes: F30; F31; F32; F34; F36; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| domestic economic fragility (F52) | currency crises (F31) |
| current account deterioration (F32) | domestic economic fragility (F52) |
| fiscal imbalances (E62) | domestic economic fragility (F52) |
| financial excesses (G32) | domestic economic fragility (F52) |
| foreign debt unsustainability (F34) | domestic economic fragility (F52) |
| adverse world market conditions (G10) | sudden-stop crises (G01) |
| reversal of international capital flows (F32) | adverse world market conditions (G10) |
| self-fulfilling crises (H12) | immaculate fundamentals (Y20) |
| multiple vulnerabilities (Y50) | currency crises (F31) |
| adverse shocks in international capital markets (F32) | currency crises in mature markets (F31) |
| financial excesses (G32) | severity of crises (H12) |
| currency crises (F31) | output losses (D57) |
| currency crises (F31) | reserve losses (G22) |
| currency crises (F31) | currency depreciation (F31) |