The Interactions Between Debt and Currency Crises -Common Causes or Contagion?

Topics:
Commercial Lending
Tags:
Banking,
Crisis,
Currency & Foreign Exchange,
Currency Crise,
Finance,
Financial Services,
Foreign Direct Investment (FDI),
Investment
Source:
University of California, Berkeley

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Overview: In contrast to the well-known twin currency and banking crises the literature has so far neglected a second type of twin crises, the simultaneous occurrence of currency and debt crises. This empirical analysis finds some evidence that one-year lagged debt crisis strongly Granger causes currency crisis and two-year lagged currency crisis weakly Granger causes debt crisis. It finds strong evidence that debt and currency crises have common fundamental causes. Low reserve over imports ratio, low domestic GDP growth rate, and low FDI over external debt ratio all increase the likelihood of debt and currency crises.

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Format: PDF | Size: 291KB | Date: Dec 2004 | Pages: 44

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