Anticipation, external crises, and output growth in emerging market economies

Abstract

This paper examines the relative effect of anticipated and unanticipated components of external crises on growth cycles in emerging market economies. The external crises considered are currency crises and current account reversals. Unlike the negative effect of current account reversals on gross domestic product growth, which can be attributed to unsound development and existing imbalance in the domestic economy, the likely negative effect of the currency and joint crises is due to both an unsound domestic economy and unanticipated external shocks, such as contagion from other economies, owing to regional homogeneity.