The determinants of currency crises

About this book

A lot of research has been carried out on currency crises, but the existing literature largely fails to adequately recognize the role of politics in creating financial turbulence. This book explains the role of political factors in the occurrence of currency crises. It starts out with a discussion of political developments in four prominent crisis cases, including Turkey and Argentina in the early 2000s, before discussing various extensions of a workhorse model of the economics literature, two of which are original, to show how upcoming elections, intra-governmental conflict, and lobbying activity can impact the stability of an exchange rate regime. The econometric analysis uses a diverse sample of 69 countries over 1975-97 to determine whether the inclusion of political variables can make a difference in crisis prediction without adding too much complexity, compared with standard early-warning-systems models that rely exclusively on macroeconomic fundamentals. This book provides a thorough and in-depth report, seeking to translate concepts from the discipline of political science into the language of economics. It is essential reading for all interested in international political economy and financial crises.