Empirical Indicators of Currency Crises in East Asia
Pacific Economic Review, 4: 2 (1999) pp. 165-183
Posted: 31 Mar 2013
Date Written: 1999
The paper is concerned with identifying useful indicators of the probability of currency crises in Indonesia, Malaysia, the Philippines, South Korea and Thailand over a period of 22 years, where a currency crisis is defined as a large and infrequent devaluation of a local currency. The leading crisis indicators include international and domestic factors; but they are dominated by the leading indicators from the financial sector, such as the ratio of short-term debt to foreign reserves, the ratio of M2 to foreign reserves, and the indicator representing a regional contagion effect. This result is interpreted as pointing to external illiquidity together with adverse shifts in the market sentiment as the likely catalyst for the 1997-98 East Asia crisis.
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