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External Shocks and Banking Crises in Developing Countries: Does the Exchange Rate Regime Matter?

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  • Chandima Mendis

Abstract

This paper examines some determinants of banking crises in developing economies. Specifically, the effects of terms of trade shocks and capital flows are analyzed. The choice of the nominal exchange rate regime is found to be a crucial factor in the way various shocks are transmitted through the monetary sector. A logit model is used on panel data and preliminary results indicate that countries with flexible regimes were able to lessen the impact of external shocks on the domestic economy. This in turn reduced the likelihood of banking crises.

Suggested Citation

  • Chandima Mendis, 2002. "External Shocks and Banking Crises in Developing Countries: Does the Exchange Rate Regime Matter?," CESifo Working Paper Series 759, CESifo.
    • Handle: RePEc:ces:ceswps:_759
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    Cited by:

    1. Ward, Felix, 2014. "Spotting the Danger Zone - Forecasting Financial Crises with Classification Tree Ensembles and Many Predictors," Bonn Econ Discussion Papers 01/2014, University of Bonn, Bonn Graduate School of Economics (BGSE).
    2. Julian Caballero, 2012. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises? Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom- Bust Cycles," Research Department Publications 4775, Inter-American Development Bank, Research Department.
    3. Jean-Louis Combes & Alexandru Minea & Moussé Sow, 2016. "Crises and exchange rate regimes: time to break down the bipolar view?," Applied Economics, Taylor & Francis Journals, vol. 48(46), pages 4393-4409, October.
    4. Fisayo Fagbemi, 2021. "COVID-19 and Sustainable Development Goals (SDGs): An Appraisal of the Emanating Effects in Nigeria," Working Papers 21/026, European Xtramile Centre of African Studies (EXCAS).
    5. Julián A. Caballero, 2016. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?," Economic Journal, Royal Economic Society, vol. 126(591), pages 281-316, March.
    6. Fisayo Fagbemi, 2021. "COVID-19 and Sustainable Development Goals (SDGs): An Appraisal of the Emanating Effects in Nigeria," Research Africa Network Working Papers 21/026, Research Africa Network (RAN).
    7. Andrew Powell & Pilar Tavella, 2015. "Capital Inflow Surges in Emerging Economies: How Worried Should Latin America and the Caribbean Be?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-37, February.
    8. Klaus Schmidt-Hebbel, 2019. "Macroeconomic Institutions: Lessons from World Experience for MENA Countries," Working Papers 1311, Economic Research Forum, revised 21 Aug 2019.
    9. Julian Caballero, 2012. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises? Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom- Bust Cycles," Research Department Publications 4775, Inter-American Development Bank, Research Department.
    10. Andrew Powell, 2012. "The World of Forking Paths: Latin America and the Caribbean Facing Global Economic Risks," Research Department Publications 4766, Inter-American Development Bank, Research Department.
    11. Marko Malovic & Svetislav Paunovic, 2012. "Flow of Funds in balkan Banks: Narrow Banking or Narrow Escape?," Book Chapters, in: Paulino Teixeira & António Portugal Duarte & Srdjan Redzepagic & Dejan Eric (ed.), European Integration Process in Western Balkan Countries, edition 1, volume 1, chapter 29, pages 564-288, Institute of Economic Sciences.
    12. Andrew Powell & Pilar Tavella, 2012. "Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be?," Research Department Publications 4782, Inter-American Development Bank, Research Department.
    13. Fisayo Fagbemi, 2021. "COVID-19 and Sustainable Development Goals (SDGs): An Appraisal of the Emanating Effects in Nigeria," Working Papers of the African Governance and Development Institute. 21/026, African Governance and Development Institute..
    14. Andrew Powell & Pilar Tavella, 2012. "Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be?," Research Department Publications 4782, Inter-American Development Bank, Research Department.

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