The Relationship between Fiscal Sustainability and Currency Crises in Some Selected Countries

Issue: 4/2013

Alexis Cruz-Rodríguez

Pontificia Universidad Católica Madre y Maestra, Av. Abraham Lincoln Esq. Rómulo Betancourt, Ensanche La Julia, Santo Domingo, Dominican Republic, Email:

The aim of this article is to assess whether a Fiscal Sustainability Indicator (FSI) can be used to predict the probability that a currency crisis occurs. The FSI developed by Croce and Juan-Ramón (2003) is employed. Two different definitions for currency crises are used to evaluate whether they induce different results in the analysis. In general, the results suggest that the lagged FSI has an explanatory power over currency crises in some countries.

DOI: 10.2478/revecp-2013-0008
JEL: F33, F31, E62
Keywords: probit model, foreign exchange, fiscal sustainability, Currency crises


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