Common Determinants of the Likelihood of Currency Crises in BRICS

Balaga Mohana Rao and Puja Padhi

Global Business Review, 2020, vol. 21, issue 3, 698-712

Abstract: We consider a panel of quarterly data for five BRICS countries for the period 1996: Q1 through 2015: Q4 to examine the currency crises. In this article, we construct an exchange market pressure index using Kaminsky, Lizondo and Reinhart (KLR) methodology to identify the crisis periods. Upon identifying the crisis periods, we examine the common determinants of the currency crises in these five counties using a panel probit model with random effects. Among the 22 identified periods across five BRICS countries, Russia has seen a currency stress quite often followed by Brazil, South Africa, China and India. Our main finding is that variables such as base money to broad money, broad money growth, current account balance, exports, imports, inflation, real interest rate and real effective exchange rate (REER) work as leading indicators of the crises and major contributing factors in a country’s vulnerability to crisis. We also find that the prediction of crises is robust at cut-off probability of 50 per cent.

Keywords: Currency crises; crisis determinants; exchange rate; predictability of crisis (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/0972150918779163 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:21:y:2020:i:3:p:698-712

DOI: 10.1177/0972150918779163

Access Statistics for this article

More articles in Global Business Review from International Management Institute
Bibliographic data for series maintained by SAGE Publications ().