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Contagious Currency Crises: First Tests

Barry Eichengreen, Andrew Rose and Charles Wyplosz
The Scandinavian Journal of Economics
Vol. 98, No. 4, Financial Liberalization and Macroeconomic Stability (Dec., 1996), pp. 463-484
Published by: Wiley on behalf of The Scandinavian Journal of Economics
DOI: 10.2307/3440879
Stable URL: http://www.jstor.org/stable/3440879
Page Count: 22
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Contagious Currency Crises: First Tests
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Abstract

We address the fact that the incidence of speculative attacks tends to be temporally correlated; that is, currency crises appear to pass "contagiously" from one country to another. The paper provides a survey of the theoretical literature. We also provide empirical evidence consistent with the contagious nature of currency crises. We estimate that the existence of a currency crisis elsewhere in the world (whether successful or not) raises the probability of an attack on the domestic currency by 8 percent, even after taking account of a variety of domestic political and economic factors.

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