ABSTRACT
This chapter examines the determinants of currency crises in ASEAN-4 countries particularly Malaysia, Thailand, Indonesia, and the Philippines. It develops a formal empirical model to analyse the determinants of currency crises. The chapter determines whether there exists contagion in foreign exchange markets, in which a speculative attack in one country may spread to the other countries. It also determines the ability of the model to predict the likelihood of currency crises in ASEAN-4 countries. The chapter estimates explicitly the multiperiod probit model linking macroeconomic variables and a measure of contagion to the crisis index using pooled quarterly data for Malaysia, Thailand, Indonesia, and the Philippines from 1987 to 1997. It employs logit model as a comparative estimation. The chapter adopts a regional definition of contagion instead of general measure of contagion as proposed by Eichengreen et al. that used the crisis index to construct a measure of contagion.
