Discussion paper

DP1349 Currency Crashes in Emerging Markets: Empirical Indicators

We use a panel of annual data for over one hundred developing countries from 1971?92 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 foreign direct investment to debt is consistently associated with a high likelihood of a crash.


Frankel, J and A Rose (1996), ‘DP1349 Currency Crashes in Emerging Markets: Empirical Indicators‘, CEPR Discussion Paper No. 1349. CEPR Press, Paris & London. https://cepr.org/publications/dp1349