First generation models of currency crises can most reliably explain
A) the dollar crisis of the 1960s
B) Latin American currency crises in the 1970s and 1980s
C) the 1992 crisis in the European Exchange Rate Mechanism (ERM)
D) the Asian crisis of the 1990s
E) none of the above

Question

Quizplus · Accepted Answer

First generation models of currency crises focus on the balance of payments and the role of speculation in triggering crises. Latin American countries faced a number of currency crises in the 1970s and 1980s, often brought on by high levels of debt, current account deficits, and external shocks such as changes in commodity prices. These factors align with the assumptions of first generation models, making them the most reliable explanation for these crises. The other options may be better explained by second or third generation models that take into account additional factors such as macroeconomic policies or financial market imperfections.

First Generation Models of Currency Crises Can Most Reliably Explain