Currency and Banking Crisis in Developed and Emerging Economies

Abstract

Financial crises, encompassing banking and currency disruptions, are pivotal events with far-reaching implications for global economic stability. This research investigates the nuanced dynamics of banking and currency crises in both developed and developing economies, aiming to discern distinctive patterns, risk factors, and interrelationships between these crisis types across different economic contexts. Leveraging a comprehensive crisis database covering 206 countries and a myriad of macroeconomic indicators from reputable sources, the study employs a panel logit model to analyze the determinants and likelihood of crises occurrence. The analysis unveils a higher prevalence of banking crises in developing economies, attributable to macroeconomic vulnerabilities such as slow GDP growth and elevated inflation rates. In contrast, developed nations exhibit greater resilience to currency crises, characterized by robust monetary mechanisms and exchange rate frameworks. However, external shocks and global economic fluctuations serve as common triggers for currency disturbances across both economic groups. Moreover, the study elucidates the intricate connections between banking and currency crises, revealing a temporal sequence where banking crises often precede or coincide with currency disturbances. This interconnectedness underscores the complexity of financial ecosystems and underscores the imperative of integrated risk management strategies. The findings offer valuable insights for policymakers, financial institutions, and stakeholders in formulating proactive measures to enhance financial resilience and mitigate the risks associated with banking and currency crises. By understanding the distinct dynamics and risk factors influencing crises in developed and developing economies, this research contributes to a deeper comprehension of global economic stability and resilience strategies.