currency crises, multiple equilibria, Markov-switching

Evaluating Currency Crises: The Case of European Monetary System

In this paper we examine the nature of currency crises. We ascertain whether the currency crises of the European Monetary System (EMS) were based either on bad fundamentals, or on self-fulfilling market expectations driven by external uncertainty, or a combination of both. In particular, we extent previous work of Jeane and Masson (2000) regarding evaluation of currency crisis. To this end we contribute to the existing literature proposing the use of three different Markov regime-switching models.