Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-23T10:18:16.522Z Has data issue: false hasContentIssue false
  • English
  • Français

Institutions, Expectations, and Currency Crises

Published online by Cambridge University Press:  04 January 2006

David Leblang  and
Shanker Satyanath
David Leblang
Affiliation:
University of Colorado, Boulder, [email protected]
Shanker Satyanath
Affiliation:
New York University, New York, [email protected]
Get access

Abstract

Currency crises are costly phenomena that have been exceptionally difficult to explain and predict. We comprehensively examine the relationship between political institutions and currency crises and emphasize the causal linkage between institutions, expectations, and crises. Specifically, we argue that institutional variables—particularly divided government and government turnover—increase the variance of expectations held by speculators thereby increasing the likelihood of currency crises. We test these hypotheses using three existing economic models of currency crises and find that institutional variables are not only statistically significant, but also substantially improve the ability of these models to forecast crises.We are grateful to Helen Milner, Charles Cameron, William Bernhard, and seminar participants at the University of Wisconsin and the University of Southern California for helpful comments. Lisa Martin and our referees provided feedback that helped dramatically improve our arguments and exposition. Andy Rose, Steve Kamin, Mathieu Bussiere, and Marcel Fratzscher generously provided data and advice that helped us replicate their findings. David Leblang acknowledges financial support from the National Science Foundation (SES-0136866).

Type
RESEARCH NOTES
Information
International Organization , Volume 60 , Issue 1 , January 2006 , pp. 245 - 262
Copyright
© 2006 The IO Foundation and Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Alesina, Alberto, and Allan Drazen. 1991. Why Are Stabilizations Delayed? American Economic Review 81 (5):1170–88.Google Scholar
Beck, Thorsten, George Clarke, Alberto Groff, Philip Keefer, and Patrick Walsh, 2001. “New Tools in Comparative Political Economy: The Database of Political Institutions.” World Bank Economic Review 15 (1):165–76.Google Scholar
Berg, Andrew, and Catherine Pattillo. 1999. Are Currency Crises Predictable? A Test. IMF Staff Papers 46 (2):107–38.Google Scholar
Broz, J. Lawrence. 2002. Political System Transparency and Monetary Commitment Regimes. International Organization 56 (4):863–89.Google Scholar
Bussiere, Matthieu, and Marcel Fratzscher. 2002. Towards a New Early Warning System of Financial Crises. ECB Working Paper 145. Frankfurt: European Central Bank. Available at 〈http://www.ecb.int/pub/pdf/scpwps/ecbwp145.pdf〉. Accessed 1 September 2005.
Calvo, Guillermo, and Enrique Mendoza. 2000a. Rational Contagion and the Globalization of Securities Markets. Journal of International Economics 51 (1):79–113.Google Scholar
Calvo, Guillermo, and Enrique Mendoza. 2000b. Capital-Markets Crises and Economic Collapse in Emerging Markets: An Information-Frictions Approach. American Economic Review 90 (2):59–64.Google Scholar
Carlsson, Hans, and Eric van Damme. 1993. Global Games and Equilibrium Selection. Econometrica 61 (5):989–1018.Google Scholar
Fearon, James. 1994. Domestic Political Audiences and the Escalation of International Disputes. American Political Science Review 88 (3):577–92.Google Scholar
Frankel, Jeffrey A., and Andrew K. Rose. 1996. Currency Crashes in Emerging Markets: An Empirical Treatment. Journal of International Economics 41 (3):351–66.Google Scholar
Frieden, Jeffry A., Piero Ghezzi, and Ernesto Stein. 2001. Politics and Exchange Rates: A Cross Country Approach. In The Currency Game: Exchange Rate Politics in Latin America, edited by Jeffrey A. Frieden and Ernesto Stein, 21–64. Washington, D.C.: Inter-American Development Bank.
Haggard, Stephan. 2000. The Political Economy of the Asian Financial Crisis. Washington, D.C.: Institute for International Economics.
Heinemann, Frank, and Gerhard Illing. 2002. Speculative Attacks: Unique Equilibrium and Transparency. Journal of International Economics 58 (2):429–50.Google Scholar
Kamin, Steven B., John Schindler, and Shawna Samuel. 2001. The Contribution of Domestic and External Factors to Emerging Market Devaluation Crises. International Finance Discussion Papers 711. Washington, D.C.: Federal Reserve. Available at 〈http://www.federalreserve.gov/pubs/ifdp/2001/711/ifdp711.pdf〉. Accessed 1 September 2005.
Keefer, Philip, and David Stasavage. 2003. The Limits of Delegation: Veto Players, Central Bank Independence, and the Credibility of Monetary Policy. American Political Science Review 97 (3):407–23.Google Scholar
Krugman, Paul. 1979. A Model of Balance of Payments Crises. Journal of Money, Credit, and Banking 11 (3):311–25.Google Scholar
Leblang, David. 2002. The Political Economy of Speculative Attacks in the Developing World. International Studies Quarterly 46 (1):69–91.Google Scholar
Leblang, David. 2003. To Devalue or to Defend? The Political Economy of Exchange Rate Policy. International Studies Quarterly 47 (4):533–59.Google Scholar
Leblang, David, and William Bernhard. 2000. The Politics of Speculative Attacks in Industrial Democracies. International Organization 54 (2):291–324.Google Scholar
MacIntyre, Andrew. 2003. The Power of Institutions: Political Architecture and Governance. Ithaca, N.Y.: Cornell University Press.
Morris, Stephen, and Hyun Song Shin. 1998. Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks. American Economic Review 88 (3):587–97.Google Scholar
Obstfeld, Maurice. 1996. Models of Currency Crisis with Self Fulfilling Features. European Economic Review 40 (3–5):1037–47.Google Scholar
Persson, Torsten, Gerard Roland, and Guido Tabellini. 1997. Separation of Powers and Political Accountability. Quarterly Journal of Economics 112 (4):1163–202.Google Scholar
Przeworski, Adam, Michael E. Alvarez, José Antonio Cheibub, and Fernando Limongi. 2000. Democracy and Development: Political Institutions and Well-Being in the World, 1950–1990. Cambridge: Cambridge University Press.
Roubini, Nouriel, and Jeffrey Sachs. 1989. Political and Economic Determinants of Budget Deficits in the Industrial Democracies. European Economic Review 33 (5):903–33.Google Scholar
Simmons, Beth. 1992. Who Adjusts. Princeton, N.J.: Princeton University Press.
Tsebelis, George. 2002. Veto Players: How Political Institutions Work. New York: Russell Sage Foundation Press.
Wittman, Donald. 1989. Why Democracies Produce Efficient Results. Journal of Political Economy 97 (6):1395–424.Google Scholar