Fundamentals and speculation in the Thai Baht crisis

This paper uses a structural vector-auto regressive framework to assess the relative importance of fundamental and speculative components of the Thai Baht with particular emphasis on the dramatic collapse of the currency in 1 997. Two alternative models were used for this purpose, loosely based on th e 'first-generation' and 'second-generation' currency-crisis models. We sho w that the fall in the observed exchange rate is more than accounted for by fundamentals which is at odds with the view that the collapse of the Thai currency in 1997 was due to 'pure' speculation but simply reflected a long period of poor fundamentals. Copyright (C) 2000 John Wiley & Sons, Ltd.