CURRENCY CRASHES IN EMERGING MARKETS - AN EMPIRICAL-TREATMENT

We use a panel of annual data for over 100 developing countries from 1 971 through 1992 to characterize currency crashes. We define a currenc y 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 varie ty 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 are high. A low ratio of FDI to debt is consistently associated with a high likelihood of a cr ash.