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Currency Crises, Exchange Rate Regimes, and Capital Account Liberalization: A Duration Analysis Approach

This paper empirically analyzes the effect of exchange rate regimes and capital account liberalization policies on the occurrence of currency crises for 21 countries over the period of1970-1998. We examine changes of the likelihood of currency crises under de jure, and de facto exchange rate regimes. We also test whether the impact of the exchange rate regimes on currency stability would be different under free and restricted capital flows. Our findings show that the likelihood of currency crises changes significantly under de facto regimes. However, the results are sensitive to the choice of de facto exchange rate arrangements. Furthermore, in our sample, capital control policies appear to be helpful in preventing low duration currency crises. The results are robust to a wide variety of sample and models checks.

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File URL: http://www.carleton.ca/economics/wp-content/uploads/cep11-12.pdf
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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 11-12.

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Length: 39 pages
Date of creation: 28 Nov 2011
Date of revision:
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:11-12
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  1. Fasika Damte Haile & Susan Pozo, 2006. "Exchange Rate Regimes and Currency Crises: an Evaluation using Extreme Value Theory," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 554-570, 09.
  2. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-84, April.
  3. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
  4. Glick, Reuven & Hutchison, Michael, 2011. "The illusive quest: Do international capital controls contribute to currency stability?," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 59-70, January.
  5. Reuven Glick & Xueyan Guo & Michael Hutchison, 2004. "Currency Crises, Capital Account Liberalization, and Selection Bias," EPRU Working Paper Series 04-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  6. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  7. George M von Furstenberg, 2005. "Global Capital Markets, Integration, Crisis and Growth," Comparative Economic Studies, Palgrave Macmillan, vol. 47(3), pages 591-593, September.
  8. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece.
  9. Husain, Aasim M. & Mody, Ashoka & Rogoff, Kenneth S., 2005. "Exchange rate regime durability and performance in developing versus advanced economies," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 35-64, January.
  10. Esaka, Taro, 2010. "De facto exchange rate regimes and currency crises: Are pegged regimes with capital account liberalization really more prone to speculative attacks?," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1109-1128, June.
  11. Mohammad Karimi & Marcel Voia, 2015. "Identifying extreme values of exchange market pressure," Empirical Economics, Springer, vol. 48(3), pages 1055-1078, May.
  12. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Center for International Economics, Working Paper Series qt5pv1j341, Center for International Economics, UC Santa Cruz.
  13. Steven Radelet & Jeffrey Sachs, 2000. "The Onset of the East Asian Financial Crisis," NBER Chapters, in: Currency Crises, pages 105-153 National Bureau of Economic Research, Inc.
  14. Barry Eichengreen & Raul Razo-Garcia, 2011. "How Reliable are De Facto Exchange Rate Regime Classifications?," NBER Working Papers 17318, National Bureau of Economic Research, Inc.
  15. Leonardo Bartolini & Allan Drazen, 1996. "Capital account liberalization as a signal," Staff Reports 11, Federal Reserve Bank of New York.
  16. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  17. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, June.
  18. Mohammad Karimi & Marcel-Cristian Voia, 2011. "Empirics of Currency Crises: A Duration Analysis Approach," Carleton Economic Papers 11-11, Carleton University, Department of Economics.
  19. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  20. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
  21. Esaka, Taro, 2010. "Exchange rate regimes, capital controls, and currency crises: Does the bipolar view hold?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(1), pages 91-108, February.
  22. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  23. Backus, David K., 2005. "Comment on: "Exchange rate regime durability and performance in developing versus advanced economies"," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 65-68, January.
  24. Roberto Frenkel & Martín Rapetti, 2007. "Argentina's Monetary and Exchange Rate Policies after the Convertibility Regime Collapse," CEPR Reports and Issue Briefs 2007-12, Center for Economic and Policy Research (CEPR).
  25. Glick, Reuven & Hutchison, Michael, 2005. "Capital controls and exchange rate instability in developing economies," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 387-412, April.
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