Empirical Evidence on Currency Crises in Fixed Exchange Rate Regimes

Abstract

After considering the structure of currency speculation models and their findings, we will now address the empirical significance of the approaches. As these generations of models have been developed as a response to different currency crises in the past, we expect their explanatory power to vary across recent crisis experiences. More precisely, since FGMs have been developed to explain BOP crises experienced by developing countries during the 1970s and 1980s, they regard the collapse of a fixed exchange rate regime as the consequence of macroeconomic policies that are inconsistent with a pegged exchange rate. SGMs emerged after the 1992-93 EMS crises in which several exchange rate parities collapsed in spite of fiscal balances.