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Currency Crises, Capital-Account Liberalization, and Selection Bias

  • Reuven Glick

    (Federal Reserve Bank of San Francisco)

  • Xueyan Guo

    (University of California, Santa Cruz)

  • Michael Hutchison

    (University of California, Santa Cruz)

Are countries with unregulated capital flows more vulnerable to currency crises? Efforts to answer this question properly must control for self-selection bias, because countries with liberalized capital accounts may also have sounder economic policies and institutions that make them less likely to experience crises. We employ a matching and propensity-score methodology to address this issue in a panel analysis of developing countries. Our results suggest that, after controlling for sample selection bias, countries with liberalized capital accounts experience a lower likelihood of currency crises. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest.88.4.698
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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 88 (2006)
Issue (Month): 4 (November)
Pages: 698-714

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Handle: RePEc:tpr:restat:v:88:y:2006:i:4:p:698-714
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