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Are consistent pegs really more prone to currency crises?

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  • Esaka, Taro

Abstract

This paper evaluates the treatment effect of consistent pegs (i.e., a policy in which countries actually adopt announced pegged regimes) on the occurrence of currency crises to examine whether consistent pegs are indeed more prone to currency crises than other regimes. Using matching estimators as a control for the self-selection problem of regime adoption, we find that countries with consistent pegs have a significantly lower probability of currency crises than countries with other exchange rate policies. More interestingly, we find that countries with consistent pegs have a significantly lower probability of currency crises than those with a “fear of announcing a peg” policy (i.e., a policy in which countries actually adopt pegged regimes but do not claim to have pegged regimes). The results stand up to a wide variety of robustness checks.

Suggested Citation

  • Esaka, Taro, 2014. "Are consistent pegs really more prone to currency crises?," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 136-163.
    • Handle: RePEc:eee:jimfin:v:44:y:2014:i:c:p:136-163
    DOI: 10.1016/j.jimonfin.2014.02.003
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    More about this item

    Keywords

    Exchange rate regimes; Currency crises; Speculative attacks; Consistent pegs; Self-selection bias; Matching estimators;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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