Currency Crashes in Industrial Countries: What Determines Good and Bad Outcomes?

Joseph Gagnon

International Finance, 2010, vol. 13, issue 2, 165-194

Abstract: Sharp exchange rate depreciations, or currency crashes, are associated with poor economic outcomes in industrial countries only when they are caused by inflationary macroeconomic policies. Moreover, the poor outcomes are attributable to inflationary policies in general and not the currency crashes in particular. On the other hand, crashes caused by rising unemployment or external deficits have always been followed by solid economic growth, rising asset prices and stable or falling inflation rates.

Date: 2010
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