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Original Sin Mystery Trinity and Unequal Blessings

  • Deniz Arinsoy

    ()

    (Undersecretariat of the Turkish Treasury)

  • Erdal Özmen

    ()

    (Department of Economics, METU)

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.

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File URL: http://www.erc.metu.edu.tr/menu/series04/0415.pdf
File Function: First version, 2004
Download Restriction: no

Paper provided by ERC - Economic Research Center, Middle East Technical University in its series ERC Working Papers with number 0415.

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Length: 16 pages
Date of creation: Oct 2004
Date of revision: Oct 2004
Handle: RePEc:met:wpaper:0415
Contact details of provider: Postal: Ankara 06531
Phone: +90 (312) 210 2003
Fax: (312) 210 1244
Web page: http://www.erc.metu.edu.tr
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  1. McKinnon, Ronald I., 2004. "The East Asian dollar standard," China Economic Review, Elsevier, vol. 15(3), pages 325-330.
  2. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  3. William Greene, 1998. "Marginal Effects in the Censored Regression Model," Working Papers 98-05, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. 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.
  5. repec:rus:hseeco:181565 is not listed on IDEAS
  6. Maurice Obstfeld, 2004. "Globalization, Macroeconomic Performance, and the Exchange Rates of Emerging Economies," NBER Working Papers 10849, National Bureau of Economic Research, Inc.
  7. Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 03001, Stanford University, Department of Economics.
  8. De la Torre, Augusto & Levy Yeyati, Eduardo & Schmukler, Sergio L., 2002. "Financial globalization : unequal blessings," Policy Research Working Paper Series 2903, The World Bank.
  9. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  10. repec:rus:hseeco:123922 is not listed on IDEAS
  11. 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.
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