An empirical analysis of currency crises, fundamentals and speculative pressure

The main purpose of this paper is to investigate the linkage between economic fundamentals and currency crises for four different group of countries that experience very different growth path or crises from 1991 to 2006. For this purpose, logit model was used in identifying the determinants of the currency crises' likelihood and the market pressure index (MPI) were used in determining the currency crises of the four different groups of countries. The study selects Argentina, Brazil and Mexico from America; Malaysia, Philippines, South Korea and Thailand from East and Southeast Asia; Russia and Turkey. The empirical findings stated that: (1) real interest rate, rate of inflation, growth rate of GDP, budget balance, real exchange rate and the ratio of M2 to foreign exchange reserves were statistically significant explanatory variables; (2) however, domestic credit to GDP and various types of trade variables were not statistically significant.