{
  "title": "Spreading Currency Crises: The Role of Economic Interdependence",
  "publication": "IMF Working Papers, August 1, 2002",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/spreading-currency-crises-the-role-of-economic-interdependence-15977",
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  "summary": "We analyze in this paper how the mutual dependence of private sector expectations in different countries on one another influences the stability of fixed exchange rate regimes.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Authors: Wolfram Berger, Helmut Wagner  \n- Date: August 1, 2002  \n- Series: Working Paper No. 2002/144  \n- Pages: 20  \n- DOI: https://doi.org/10.5089/9781451856453.001  \n- Core claim: Mutual dependence of private sector expectations across countries affects the stability of fixed exchange rate regimes; increases in the perceived crisis probability of one country raise the devaluation probability of its trading partners."
    },
    {
      "heading": "Mechanism and Findings",
      "content": "- Interdependence channel:\n  - Crisis probabilities of countries trading with one another are interdependent because wage setters react to an imminent loss of international competitiveness stemming from an increase in the crisis probability of a trading partner.\n  - If a currency crisis in one country is perceived to be increasingly likely, the probability of devaluation of its trading partners’ currencies to restore their international competitiveness rises as well.\n- Triggering factors:\n  - Not only actual devaluations but also an increasing crisis probability may trigger currency crises elsewhere.\n  - Both fundamental weaknesses and spontaneous shifts in market sentiment may play a role in precipitating currency crises."
    },
    {
      "heading": "Policy-relevant implications (derived from analysis)",
      "content": "- Monitor and account for cross-country expectation channels when assessing vulnerability of fixed exchange rate regimes.\n- Recognize that perceptions and market sentiment can propagate crises even absent immediate fundamentals-based triggers.\n- Wage-setting behavior and competitiveness concerns in trading partners are potential amplification mechanisms for crisis propagation.\n\n---\n\n Content in this bundle\n\n- Spreading Currency Crises: The Role of Economic Interdependence - WP/02/144\n  - Spreading Currency Crises: The Role of Economic Interdependence - WP/02/144 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Spreading Currency Crises: The Role of Economic Interdependence - WP/02/144 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/spreading-currency-crises-the-role-of-economic-interdependence-15977"
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    "Authors: Wolfram Berger, Helmut Wagner",
    "Published: August 1, 2002",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451856453.001",
    "Authors: Wolfram Berger, Helmut Wagner",
    "Date: August 1, 2002",
    "Series: Working Paper No. 2002/144",
    "Pages: 20",
    "DOI: https://doi.org/10.5089/9781451856453.001",
    "Core claim: Mutual dependence of private sector expectations across countries affects the stability of fixed exchange rate regimes; increases in the perceived crisis probability of one country raise the devaluation probability of its trading partners.",
    "Interdependence channel:",
    "Triggering factors:",
    "Monitor and account for cross-country expectation channels when assessing vulnerability of fixed exchange rate regimes.",
    "Recognize that perceptions and market sentiment can propagate crises even absent immediate fundamentals-based triggers.",
    "Wage-setting behavior and competitiveness concerns in trading partners are potential amplification mechanisms for crisis propagation.",
    "**Spreading Currency Crises: The Role of Economic Interdependence - WP/02/144**"
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