6533b82bfe1ef96bd128e1c1

RESEARCH PRODUCT

Evaluating currency crises: the case of the European monetary system

Kostas MouratidisAndrea CipolliniNicola Spagnolo

subject

Statistics and ProbabilityMacroeconomicsEconomics and EconometricsMarkov chainDevaluationEuropean Monetary SystemMonetary economicsCurrency crisisProbability modelnon linear time seriesMathematics (miscellaneous)Currencynon linear time series; currency crisescurrency crisesEconomicsMarket expectationsCurrency crises Multiple equilibria Markov-switchingForeign exchange riskSocial Sciences (miscellaneous)

description

In this paper we examine the nature of currency crises. We ascertain whether the currency crises of the European Monetary System (EMS) were based either on fundamentals, or on self-fulfilling market expectations driven by extrinsic uncertainty. In particular, we extend previous work of Jeanne and Masson (J Int Econ 50:327–350, 2000) regarding the evaluation of currency crisis. We contribute to the existing literature proposing the use of Markov regime-switching with time-varying transition probability model. Our empirical results suggest that the currency crises of the EMS were not due only to market expectations driven by external uncertainty, or ‘sunspots’, but also to fundamental variables that help to explain the behavior of market expectations.

yearjournalcountryeditionlanguage
2007-06-16
10.1007/s00181-007-0141-6https://hdl.handle.net/11380/608707