Abstract:
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 the nominal depreciation. We examine
the composition of the debt as well as its level, and a variety of other macroeconomic, external and
foreign factors. Our factors are significantly related to crash incidence, especially output growth, the
rate of change of domestic credit, and foreign interest rates. A low ratio of FDI to debt is consistently
associated with a high likelihood of a crash.
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