Abstract
Abstract Generally, one of the important issues related to currency crises is the output losses caused by these phenomena. In this study, determinants of output losses and particularly the role of the central bank will be evaluated during currency crises. Moreover, the paper tries to investigate the roles of macroeconomic variables and also monetary, fiscal and exchange rate policies on the output losses during currency crises. In this regard, an econometric model with panel data has been used for emerging market countries during 1980-2016. The results show that currency crises accruing have a positive and significant effect on output losses. While the successful defence of central bank has had the negative effects on the output losses, but it is positive for the unsuccessful defence and the non-intervention or immediate depreciation. However, the role of the macroeconomic condition is important where total foreign reserves can be considered as a buffer against the output losses, while inflation and deviation of the real exchange rate from its trend have had positive effects on the output losses. Finally, the output losses can be reduced by an active monetary, fiscal and exchange rate policies.
Highlights
Episodes like the Latin American debt crises in the 1980s, the 1987 Black Monday, the 1992-1993 ERM crisis, the 1994-1995 Tequila crisis, the 1997-1998 South80 Journal of Central Banking Theory and PracticeEast Asian meltdown, the 1998-1999 Brazilian and Russian crisis, the 2000-2001 Turkish crisis, the 2001 Argentine crisis and the 2007-2009 global financial crisis are important phenomena in the world financial market
The main institution to respond to the currency crisis is the central bank which could reduce the output losses by appropriate policies and decisions
Two measures for the output losses have been introduced in this study as OL0 and OL1, we will focus on OL0 because, first of all, this variable is continuous unlike OL1 that is a discrete variable and can be calculated only at the time of a currency crisis
Summary
Episodes like the Latin American debt crises in the 1980s, the 1987 Black Monday, the 1992-1993 ERM crisis, the 1994-1995 Tequila crisis, the 1997-1998 South80 Journal of Central Banking Theory and PracticeEast Asian meltdown, the 1998-1999 Brazilian and Russian crisis, the 2000-2001 Turkish crisis, the 2001 Argentine crisis and the 2007-2009 global financial crisis are important phenomena in the world financial market. Currency crises have had different effects on output, including bust or boom. Turkey experienced six currency crises during 1994-2006 which have had different effects on its economy. Output had decreased strictly after the currency crises of 1994 and 2000, it did not change after the crisis of 1998, and it even enlarged in the aftermath of the currency crises of 2003, 2004 and 2006. Surveying the currency crisis shows that more than two-fifths of the occurred crises have had expansionary effects on the output in developing countries during 1970-1980, while they have had contractionary effects during recent two decades. The crises in Brazil (1979), Colombia (1985), China (1994), Venezuela (1984) and Hungary (1993) were accompanied by the economic growth decreasing (Gupta, Mishra & Sahay, 2007; Erler, Bauer, & Herz, 2015)
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