This paper attempts to determine the extent to which common external shocks explain simultaneous currency crises. We define crises on a country by country basis using a new criterion that takes into account variations in the volatility of exchange rates over time and across countries. Using a Poisson regression model, we find that over the post-Bretton woods period, a small number of common external shocks can explain between sixty to eighty percent of the variation in the total number of crises over time, depending upon the set of countries one looks at. Our findings provide one explanation of why currency crises sometimes bunch together and sometimes do not.
Trehan, Bharat, and Ramon Moreno. 2000. “Common Shocks and Currency Crises,” Federal Reserve Bank of San Francisco Working Paper 2000-05. Available at https://doi.org/10.24148/wp2000-05