CONTAGIOUS CURRENCY CRISES - FIRST TESTS

We address the fact that the incidence of speculative attacks tends to be temporally correlated; that is, currency crises appear to pass ''c ontagiously'' from one country to another. The paper provides a survey of the theoretical literature. We also provide empirical evidence con sistent with the contagious nature of currency crises. We estimate tha t the existence of a currency crisis elsewhere in the world (whether s uccessful or not) raises the probability of an attack on the domestic currency by 8 percent, even after taking account of a variety of domes tic political and economic factors.