On the relation between currency and banking crises in developing countries, 1980–2010

Abstract

This paper investigates the relationship between the occurrence of currency and banking crises using high-frequency data for a sample of 94 countries during 1980–2010. The two types of crises are proxied by continuous, multi-categorical and dummy variables based on market pressure indexes, and a dummy variable from the Laeven–Valencia banking crises database. Results suggest that a bidirectional leading relationship exists between the two types of crises. However, banking crises do not lead currency crises robustly when banking crises are proxied by dummies based on market pressure indexes. Finally, currency crises have robust state dependence, but this is not the case for banking crises.