Munich Personal RePEc Archive

Modeling currency instability: The 1997 Asian crisis re-examined

Inchauspe, Julian (2008): Modeling currency instability: The 1997 Asian crisis re-examined.

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The 1997 Asian crisis triggered major breakthroughs in ways in which financial vulnerability, and in particular currency crises, are modeled and explained. This paper discusses some of these developments in three steps. First, a stylized simple model explaining self-fulfilling crises is presented. Secondly, this model is used as a framework to analyze hypotheses which are often found in the literature and their implications for financial instability. The third contribution involves the application of Markov-switching multivariate techniques to empirically examine the main model. Inter alia, issues such as information structure, expectations, coordination failure, sunspots, financial regulations and contagion are explored.

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