NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Currency Crashes in Emerging Markets: Empirical Indicators

Jeffrey A. Frankel, Andrew K. Rose

NBER Working Paper No. 5437*
Issued in January 1996

We use a panel of annual data for over one hundred developing countries from 1971 through 1992 to characterize currency crashes. We define a currency crash as a large change of the nominal exchange rate that is also a substantial increase in the rate of change of nominal depreciation. We examine the composition of the debt as well as its level, and a variety of other macroeconomic factors, external and foreign. Crashes tend to occur when: output growth is low; the growth of domestic credit is high; and the level of foreign interest rates is high. A low ratio of FDI to debt is consistently associated with a high likelihood of a crash.

*Published: Journal of International Economics, 1996

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