Implications of Past Currency Crises for the U.S. Current Account Adjustment: Working Paper 2006-07

This paper examines past currency crises to shed light on the likelihood that the adjustment of the U.S. current account deficit will involve a dollar crisis. A currency crisis is narrowly defined to be a depreciation that exceeds a critical threshold, regardless of whether it has an adverse effect on the real economy. The literature suggests that one should not infer from the experience of emerging economies what will happen to the dollar. This paper’s empirical findings lend support to that view. Everything else being equal, currencies are more likely to collapse in emerging economies than