Financial vulnerability has become a much-studied topic in recent years. The Mexican crisis of 1994-95 reinvigorated interest in developing country capital market crises, and the 1997 events originating in East Asia widened the range of possible causes and mechanism. Then the Russian crisis of 1998 brought the issue especially close to the transition countries in Central and Eastern Europe, where exchange rate, banking and stock market upheavals have been quite frequent. Countries with a view towards joining the Economic and Monetary Union must regard vulnerability to crises as one of their most important concerns, since preconditions of candidature explicitly require that violent movements in certain financial variables, such as exchange rates, do not occour.

In this paper we shell first ask whether there has been a veritable boom of financial crises in transition economies. Section 2 is devoted to definitions, and it briefly lists some facts about the incidence of financial crises in 11 transition economies, restricting attention to the period 1995-1999, in order to avoid issues pertaining to the beginning of transition. Thereafter we focus on currency crises and ask what the theoretical models tell us about these.

WP 2000/6