Currency Crises in the Post-Bretton Woods Era: A New Dataset of Large Depreciations

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We introduce a novel dataset of large depreciations worldwide since 1971. First, we use a multi-step approach to accurately pinpoint large depreciation events on monthly data. We then construct large depreciation episodes that cover 24 months after the initial depreciation event. The month-level data allows for a granular characterization of the dynamics of large depreciations across multiple metrics, including maximum and equilibrium depreciations, overshooting, and number of depreciation events within a single episode. We then present stylized facts on episodes across various characteristics and groups (income, REER trajectory, number of events, exchange rate flexibility, and IMF-supported program status). Among these: (i) a few months into an episode, REER tends to appreciate unless there is an "aftershock" depreciation, (ii) attempts to peg following the initial depreciation are associated with a higher likelihood of "aftershocks", and (iii) equilibrium REER depreciations are largest when an IMF-supported program is put in place after the initial depreciation takes place.

Subject: Currencies, Currency crises, Depreciation, Exchange rate flexibility, Exchange rates, Financial crises, Foreign exchange, Money, National accounts, Nominal effective exchange rate, Real effective exchange rates

Keywords: Crisis, Currencies, Currency crises, Depreciation, Equilibrium depreciation, Exchange rate, Exchange rate flexibility, Exchange rates, Inflation, Nominal effective exchange rate, Overshoooting, Real effective exchange rates, Real exchange rate