- - Currency Crises Talk delivered at the Graduate School of Industrial Administration, Carnegie Mellon University April 9, 1999 Saurabh Singal E-mail:
[email protected] Currency Crises Page 1 e Contents 1. Models Of Exchange Rate Determination 1.1 Introduction 1.2 Purchasing Power Parity and Exchange Rates 1.2.1 Problems with PPP 1.3 Monetary Approach to Exchange Rate Determination 1.3.1 Flexible – Price Monetary Model 1.3.2 Dornbusch’s Sticky Price Monetary Model 1.3.3 Further Refinements to the Monetary Model 1.3.4 Empirical Performance of the Monetary Models 1.4 The Portfolio Balance Approach to Exchange Rate Determination 1.4.1 Basic Framework 1.4.2 Synthesis of Monetary and Portfolio Balance Approaches 2. Models of Currency Crisis 2.1 Introduction 2.2 First Generation Models of Currency Crisis 2.3 Second Generation Models of Currency Crisis 2.3.1 Examples of Second Generation Models 3. Early Warning Systems and Estimating Currency Crisis Probabilities 3.1 Introduction 3.2 Factors used to Explain Crisis: 3.3 Early Warning Indicators: The Approach of Kaminsky, Lizondo and Reinhart 3.3.1. Statistics Analyzed by Kaminsky, Lizondo and Reinhart 3.3.2 The Lead Time of Indicators 3.3.3 Persistence of Signals: 3.3.4 IMF's May 1998 World Economic Outlook Report: 4. Contagion in Currency Crises 4.1 Introduction 4.2 Reasons behind contagion 4.3 The Study by Eichengreen, Rose and Wyplosz. 4.4 The Naïve Contagion Model 4.5 The Trade Weighted Contagion Model 4.6 The Macroeconomic Weighted Contagion Model 5 Alternative Monetary Systems for Prevention