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Exchange Arrangements and Currency Crises: What´s the matter with the exchange rate classification?

Cruz-Rodríguez, Alexis (2016): Exchange Arrangements and Currency Crises: What´s the matter with the exchange rate classification?

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Abstract

The purpose of this paper is to empirically investigate whether certain exchange rate arrangements are more prone to currency crises using a probit model. We define a currency crisis as a period characterised by the presence of intense foreign exchange market pressure. The definition is based on a foreign exchange market pressure index (MPI). If the value of the MPI is above a certain threshold, we define that period as a crisis state; otherwise the period is defined as a tranquil state. The definition of currency crises used in this paper focuses on discrete events.

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