Currency Crisis in Developing Countries

Abstract

Currency crises have been the subject of an extensive economic literature, both theoretically and empirically. The purpose of this chapter is to examine and investigate the causes of currency and associated crises, evaluates the accuracy of empirical models in predicting crises, and review works on measuring the consequences of crises on the real economy. It is a cross sectional survey study and used of secondary data on the causes of currency and associated crises, and challenges in avoiding these crises. The study reveals that reduce output, financial liberalization, capital and current accounts, the real economy and macroeconomic conditions are some of the indicators of currency crisis. A key cost of currency crisis is forgone output. EWS models estimate probabilities of crises to occur. The implications are that currency crisis negatively affects the economy needs to be predicted and managed appropriately.