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Abstract:
In the wake of the ERM and Mexican currency crises, the subject of
balance-of-payments crises has come to the forefront of academic and policy
discussions. This paper focuses on the potential links between banking and
balance-of-payments crises. We examine these episodes for a large number of
countries and find that knowing that there are banking problems helps in
predicting balance-of-payments crises, but the converse is not true; financial
liberalization usually predates banking crises, indeed, it helps predict them.
Rather than a causal relationship from banking to balance-of-payments crises,
the macroeconomic "stylized facts" that characterize these episodes point to
common causes.
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