Predicting Currency Crises, the Role of Multiple Equilibria and the Contagion Effect

Abstract

This paper reassesses the informative content of macroeconomic fundamentals with respect to currency crisis prediction for the period of the 1990s on a group of 46 developed and emerging economies. A distinction is made between variables emphasized by ‘first generation’ and ‘second generation’ models. Special attention is directed towards multiple equilibria and contagion phenomena.