The Aftermath of a Currency Collapse: How Different are Emerging Markets?

In currency crises, unlike in orderly devaluations, the financial markets dominate events. It is shown that currency collapses (crises followed by depreciations) have had a much greater adverse impact in emerging markets (defined as relatively high-income developing countries exposed to international capital markets) than in developed countries. There is greater nominal and real depreciation, a substantial inflation shock, a much bigger output effect, and far greater import compression, whilst inflows of portfolio capital virtually cease. There is wide variation in the post-collapse experience of emerging markets. JEL Nos: F3