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Defaults in the 90´s: Factbook and Preliminary Lessons

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  • Federico Sturzenegger
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    Abstract

    The literature has identified at least five approaches to the determinants of the choice of exchange rate regimes: i) optimal currency area theory; ii) exchange rate policy and the absortion of real and nominal shocks; iii) exchange rate rules as a policy crutch in credibility-challenged economies; iv) the impossible trinity in light of increasing financial globalization; and v) the balance sheet exposure to exchange rate changes in financially dollarized economies. Using both a de facto and a de jure regime classification, we test the empirical relevance of these approaches simultaneously. We find overall empirical support for all of them, although their relative relevance varies substantially between industrial and non-industrial economies. We show that regime choices, as well as deviations between actual and reported policies, can be accurately predicted by a small number of economic and political characteristics of each country. When regimes are correctly characterized, they display no time trend, suggesting that the trends typically highlighted in the exchange rate regime debate can be traced back to the evolution of their natural determinants

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    File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-102002.pdf
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    Bibliographic Info

    Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number veintidos.

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    Length: 33 pages
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:udt:wpbsdt:veintidos

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    Web page: http://www.utdt.edu/listado_contenidos.php?id_item_menu=4994
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    1. Rose, Andrew K., 2005. "One reason countries pay their debts: renegotiation and international trade," Journal of Development Economics, Elsevier, vol. 77(1), pages 189-206, June.
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    16. John J. Merrick Jr., 1999. "Crisis Dynamics of Implied Default Recovery Ratios: Evidence From Russia and Argentina," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-052, New York University, Leonard N. Stern School of Business-.
    17. Homi Kharas & Brian Pinto & Sergei Ulatov, 2001. "An Analysis of Russia's 1998 Meltdown: Fundamentals and Market Signals," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 1-68.
    18. Andrew Powell, 2002. "The Argentina Crisis: Bad Luck, Bad Management, Bad Politics, Bad Advice," Business School Working Papers veinticuatro, Universidad Torcuato Di Tella.
    19. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
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