Perspectives on the recent currency crisis literature

In the 1990s, currency crises in Europe, Mexico and Southeast Asia have dra wn worldwide attention to speculative attacks on government-controlled exch ange rates. To improve our understanding of these events, researchers have undertaken new theoretical and empirical work. In this paper, we provide so me perspective on this work and relate it to earlier research in the area. Then we derive the optimal commitment to a fixed exchange rate and propose a common framework for analyzing currency crises that draws from both the f irst-generation work and the more recent second-generation approach. The cr oss-generational framework stresses the important role of speculators and a lso recognizes that the government's commitment to a fixed exchange rate is constrained by other policy goals. In the final section we study the crisi s prediction literature and find that some crises may be particularly diffi cult to predict using currently popular methods. (C) 1999 John Wiley & Sons , Ltd.