In the 1990s, currency crises in Europe, Mexico, and Asia have drawn worldwide attention to speculative attacks on government-controlled exchange rates and have prompted researchers to undertake new theoretical and empirical analysis of these events. This paper provides some perspective on this work and relates it to earlier research. It derives the optimal commitment to a fixed exchange rate and proposes a common framework for analyzing currency crises. This framework stresses the important role of speculators and recognizes that the government’s commitment to a fixed exchange rate is constrained by other policy goals. The final section finds that some crises may be particularly difficult to predict using currently popular methods.

This volume asserts that models concerning the outbreak and the propagation of currency crises share many similarities and may therefore be studied together. Theoretical developments in the currency crises literature lead to three distinct types of models. The authors focus on these first, second and third-generation models of currency crises and also discuss the role of the international financial system in preventing currency crises.

This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.

Why do banks collapse? Are financial systems more fragile in recent decades? Can policies to fix the banking system do more harm than good? What's the history of banking crises? With dozens of brief, non-technical articles by economists and other researchers, Banking Crises offers answers from diverse scholarly viewpoints.

Offering an analytical perspective on the design and reform of the international financial architecture, this book stresses the important role played by creditor co-ordination problems in the origin and management of crises by relating the insights of the new literature on global games to earlier work on currency crises, bank runs, and sovereign debt default. It examines the design of sovereign bankruptcy procedures, the role of the IMF in influencing creditors and debtor countries,and the currency composition of sovereign debt, and draws on recent research and policy work.The book's first part provides a critical synthesis of the literature underpinning the architecture debate. It reviews the traditional distinction between "fundamentals-based" and "sunspot-based" crises before reconciling the two using global game methods. The role of co-ordination problems in sparking costly liquidation and influencing the debtor's incentives to repay is then examined in depth and shown to lie at the heart of crisis management policy. The empirical literature on leadingindicators of crisis is also critically examined and related to the architecture debate.In its second part the book examines key issues in crisis management. Suggesting that optimal reforms must set the inefficiencies of crisis against the inefficiencies of debtor moral hazard, the authors consider the relative merits of statutory and contractual solutions to sovereign debt workouts. They go on to discuss the role of the IMF in influencing private lending and debtor moral hazard, theoretically and empirically. They argue that there is no simple relationship between ex post crisismanagement and ex ante moral hazard, implying that the handling of financial crises is a delicate affair warranting a cautious approach by would-be architects.

Economists and policymakers are still trying to understand the lessons recent financial crises in Asia and other emerging market countries hold for the future of the global financial system. In this timely and important volume, distinguished academics, officials in multilateral organizations, and public and private sector economists explore the causes of and effective policy responses to international currency crises. Topics covered include exchange rate regimes, contagion (transmission of currency crises across countries), the current account of the balance of payments, the role of private sector investors and of speculators, the reaction of the official sector (including the multilaterals), capital controls, bank supervision and weaknesses, and the roles of cronyism, corruption, and large players (including hedge funds). Ably balancing detailed case studies, cross-country comparisons, and theoretical concerns, this book will make a major contribution to ongoing efforts to understand and prevent international currency crises.

An empirical investigation of financial crises during the last 800 years.