Currency crisis transmission through trade channel: Asian and Mexican crises revisited

Abstract

This paper provides support to the existing empirical evidence that trade linkages play an important role in explaining the magnitude of currency crises, in addition to macroeconomic fundamentals and stock market dynamics. We apply pooled regression analysis in an attempt to better understand the effect of trade on the Asian Crises period of 1997~1998 and the Mexican Peso Crisis of 1994~1995. Our empirical results show that trade variables explain the aforementioned crises and their contagion. We also find that the magnitude of the trade channel was similar in both cases.