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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Last update: July 19, 2001