Vulnerability to a Currency Crisis: Lessons from the Asian Experience

25 Pages Posted: 31 Dec 2002

See all articles by Prema-chandra Athukorala

Prema-chandra Athukorala

Crawford School of Public Policy, Australian National University; Australian National University (ANU)

Peter G. Warr

Australian National University (ANU) - Crawford School of Public Policy

Abstract

Are currency crises caused by manias and panics in financial markets, or by unsustainable deteriorations in domestic macroeconomic conditions? This question is explored in the context of the recent Asian currency crisis. The theoretical concept of vulnerability is used to identify three early-warning indicators of susceptibility to a currency crisis: rapid accumulation of mobile capital; domestic lending booms; and overvalued exchange rates. It is shown that the crisis and noncrisis countries of Asia may be distinguished empirically, using these indicators, over the decade preceding the crisis. This exercise provides convincing evidence that the crisis emanated largely from domestic macroeconomic conditions.

Suggested Citation

Athukorala, Prema-chandra and Warr, Peter G., Vulnerability to a Currency Crisis: Lessons from the Asian Experience. Available at SSRN: https://ssrn.com/abstract=309512

Prema-chandra Athukorala (Contact Author)

Crawford School of Public Policy, Australian National University ( email )

Coombs Building (Blgd 9)
Australian National University
Canberra, Australian Capital Territory 0200
Australia
+61 26125 8529 (Phone)
+61 26125 3700 (Fax)

HOME PAGE: http://rspas.anu.edu.au/economics/staff/athu/athu.htm

Australian National University (ANU)

Peter G. Warr

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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