Speculative attacks in emerging markets: The role of macroeconomic fundamentals

The recent currency crises in several emerging markets have touched off a debate about their causes. Whereas some blame fickle speculators for triggering speculative attacks virtually at random, others argue that the typical currency crisis is attributable to myopic economic policies. This paper examines common patterns of a large number of balance-of-payments crises focusing on a comprehensive sample of 26 emerging markets. Following a consistent categorising of events in the foreign exchange markets, it analyses the behaviour of a set of relatively easily accessible variables prior to speculative attacks. Applying univariate as well as multivariate statistical methods, it gives support to the view that in the past countries were not hit randomly by attacks on their currencies. The views expressed in this paper are those of the author and do not necessarily reflect those of the Deutsche Bundesbank. Earlier drafts of this paper were presented at the 73^rd Annual Conference of the Western Economic Association International, Lake Tahoe, in June 1998, at a Workshop of the Austrian National Bank, in July 1998, and at the ZEI Summer School on International Macroeconomics, Bad Honnef, in August 1998. The author would like to thank the participants of these meetings, and Michael Dueker, Jürgen von Hagen, Pu Shen, Andrew Rose and his colleagues for helpful comments and suggestions.