Exchange Arrangements and Currency Crises: What´s the matter with the exchange rate classification?

Abstract. The purpose of this paper is to empirically investigate whether certain exchange rate arrangements are more prone to currency crises using a probit model. We define a currency crisis as a period characterised by the presence of intense foreign exchange market pressure. The definition is based on a foreign exchange market pressure index (MPI). If the value of the MPI is above a certain threshold, we define that period as a crisis state; otherwise the period is defined as a tranquil state. The definition of currency crises used in this paper focuses on discrete events.Keywords. Exchange rate regimes, currency crises, speculative attacks.JEL. F10, F31, F32