In the 1990s, emerging mrkets round the globe experienced severl full-scle currency crises with often devstting economic, socil nd politicl effects. number of Centrl nd Estern Europen countries (CEECs) were mong those ffected. There ws not only the much-reported crisis in Russi in 1998, but lso the turmoils in Bulgri (1997), Romni (1997), the Czech Republic (1997) nd Hungry (1994-1995).
It is only recently tht ttempts hve been mde, s in Ghosh nd Ghosh (2002) nd Mulder et l. (2002), to incorporte institutions more systemticlly into erly-wrning systems. But this hs just strted nd systemtic wy in which to model the crisis-relevnt institutionl setting hs not yet been found.
Erly-wrning models focussing solely on CEECs hve completely neglected institutionl fctors. Generlly, empiricl studies on CEECs re scrce, despite the specil importnce of detecting vulnerbilities not only in the run-up to the CEECs' membership of the EU, but especilly lter on during ERM II prticiption. This pper discusses the importnce of infltion nd currency stbility s the wy of the economy development of emerging countries. The pper is structured s follows. First, look is tken t the theoreticl pproches dopted to explin currency crises nd the importnce of infltion nd currency stbility on the development of emerging economies. This prt prticulrly seeks to show the chnnels through which institutions cn influence country's vulnerbility to currency crises. In the second section, n econometric logit model is used to exmine the extent to which institutionl fctors cn serve s erly-wrning indictors for currency crises in Estern Europe.
Recent yers hve witnessed d ...