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Original Sin Mystery Trinity and Unequal Blessings

Author

Listed:
  • Deniz Arinsoy

    () (Undersecretariat of the Turkish Treasury)

  • Erdal Özmen

    () (Department of Economics, METU)

Abstract

We investigate whether the fact that most countries cannot borrow internationally in their own currencies, referred to as “original sin” by Eichengreen and Hausmann (1999), may remain as a “mystery” when an alternative variable set and estimation procedure are taken into account. Our results suggest that flexible exchange rates and strong macroeconomic policy stance with sound institutions are necessary but not sufficient for redemption from original sin. Original sin appears to be persistent and determined also by the variables which are beyond the sole control of individual countries. Consequently, redemption from it and satisfying the blessed trinity of international currency, flexible exchange rates and sound institutions requires a new international financial system allowing complete markets for all currencies meeting the necessary conditions.

Suggested Citation

  • Deniz Arinsoy & Erdal Özmen, 2004. "Original Sin Mystery Trinity and Unequal Blessings," ERC Working Papers 0415, ERC - Economic Research Center, Middle East Technical University, revised Oct 2004.
    • Handle: RePEc:met:wpaper:0415
    as

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    File URL: http://www.erc.metu.edu.tr/menu/series04/0415.pdf
    File Function: First version, 2004
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    References listed on IDEAS

    as
    1. Maurice Obstfeld, 2004. "Globalization, Macroeconomic Performance, and the Exchange Rates of Emerging Economies," NBER Working Papers 10849, National Bureau of Economic Research, Inc.
    2. Hausmann, Ricardo & Panizza, Ugo, 2003. "On the determinants of Original Sin: an empirical investigation," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 957-990, December.
    3. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    4. de la Torre, Augusto & Levy Yeyati, Eduardo & Schmukler, Sergio L, 2002. "Financial Globalization: Unequal Blessings," International Finance, Wiley Blackwell, vol. 5(3), pages 335-357, Winter.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    6. repec:rus:hseeco:123922 is not listed on IDEAS
    7. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, August.
    8. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
    9. repec:rus:hseeco:181565 is not listed on IDEAS
    10. Greene, William, 1999. "Marginal effects in the censored regression model," Economics Letters, Elsevier, vol. 64(1), pages 43-49, July.
    11. McKinnon, Ronald I., 2004. "The East Asian dollar standard," China Economic Review, Elsevier, vol. 15(3), pages 325-330.
    12. repec:hrv:faseco:34721963 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Currency mismatches; Exchange rate regimes; International financial architecture; Original sin; Rule of law;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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