Contagious currency crises: First tests

We address the fact that the incidence of speculative attacks tends to be temporally correlated; that is, currency crises appear to pass ''contagiously'' from one country to another. The paper provides a survey of the theoretical literature. We also provide empirical evidence consistent with the contagious nature of currency crises. We estimate that the existence of a currency crisis elsewhere in the world (whether successful or not) raises the probability of an attack on the domestic currency by 8 percent, even after taking account of a variety of domestic political and economic factors.