Are currency crises anticipated? Evidence from Mexican government guaranteed Eurobonds 1993-95

Clark, Ephraim and Lakshmi, Geeta (2005) Are currency crises anticipated? Evidence from Mexican government guaranteed Eurobonds 1993-95. International Journal of Finance, 17 (4). pp. 3644-3670. ISSN 1041-2743

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Are currency crises anticipated? Evidence from Mexican government guaranteed Eurobonds 1993-95
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Abstract

In this paper we use the prices of Mexican government guaranteed eurobonds to shed some light on the controversy of whether or not the currency crises of the last decade
have been anticipated by the iaternational economic, financial and political community. We calculate the probabilities of a currency crisis that causes a general
defauit on all Mexican foreign debt (we call these country default probabilities) and estimate the internationai term structure of interest rates. We then use this information in a simple reduced form credit risk model for sovereign default, which we test over the period 1993-1995. We find strong evidence that the crisis was anticipated and that it was triggered by changes in the internutional term structure.

Additional Information:In this paper we use the prices of Mexican government guaranteed eurobonds to shed some light on the controversy of whether or not the currency crises of the last decade have been anticipated by the iaternational economic, financial and political community. We calculate the probabilities of a currency crisis that causes a general defauit on all Mexican foreign debt (we call these country default probabilities) and estimate the internationai term structure of interest rates. We then use this information in a simple reduced form credit risk model for sovereign default, which we test over the period 1993-1995. We find strong evidence that the crisis was anticipated and that it was triggered by changes in the internutional term structure.
Keywords:International finance, Banking, Currency
Subjects:N Business and Administrative studies > N300 Finance
Divisions:Lincoln International Business School
ID Code:1024
Deposited On:27 Sep 2007

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