Market participants’ risk attitudes, wealth and portfolio composition influence their positions in a pegged foreign currency and, therefore, may have important effects on the sustainability of currency pegs. We analyze such effects in a global game model of currency crises with continuous action choices, generating a rich set of theoretical comparative static predictions related to often discus...

Currency crises appear to spread regionally. In this paper we use Bayesian methodology on data from four waves of currency crises in the late twentieth century to examine the mechanism by which currency crises spread from one country to another. In particular, we examine whether trade linkages, “other” unquantifiable linkages proxied for by relative geographical distance, or macroeconomic and f...

This paper presents a hybrid model for predicting the occurrence of currency crises by using the neuro fuzzy modeling approach. The model integrates the learning abil i ty of neural network with the inference mechanism of fuzzy logic . The empirical results show that the proposed neuro fuzzy model leads to a better prediction of crisis . Significantly, the model can also construct a rel iable c...

We study financial fragility, exchange rate crises, and monetary policy in an open economy version of a Diamond-Dybvig model. The banking system, the exchange rate regime, and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare; if the mechanism fails, banking crises and speculative attacks become possible. We compare currency boards, fixed rates, and...

We address three questions: (i) Can classical models be reconciled with the fact that many crises are marked by high rates of depreciation and small increases in seignorage revenue? (ii) What are the implications of different financing methods for post-crisis rates of inflation and depreciation? (iii) How do governments pay for the fiscal costs associated with currency crises? To study these qu...

We examine the impact of corporate currency hedging on economic stability by introducing hedging activity in a Mundell-Fleming-Tobin framework for analyzing currency and financial crises. The ratio between hedged and unhedged firms is modelled depending on firm size as well as hedging costs. The results indicate that, with an increasing fraction of hedged firms in an economy, the magnitude of a...

There were hardly any banking crises between 1939 and 1971, so their later reemergence came as a surprise. Central bank supervisors responded practically by discovering and encouraging the adoption of current best practice in risk management by individual banks, without much theoretical input, whereas economists have mostly focused on models which abstract from default. But default is central t...

a r t i c l e i n f o This study aims to identify which factors explain why some countries enjoy long durations of stability, while others experience crises in shorter intervals. We analyze the duration of stability periods between currency, debt, and banking crises by employing an innovative econometric strategy, the Finite Mixture Model (FMM). Real and financial variables show high predictive...