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Original Sin Mystery Trinity and Unequal Blessings

Author Info

Listed author(s):
  • 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.

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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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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
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Web page: http://www.erc.metu.edu.tr
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Keywords: Currency mismatches; Exchange rate regimes; International financial architecture; Original sin; Rule of law;

Find related papers by 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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  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. 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.
  4. 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.
  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, 08.
  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. McKinnon, Ronald I., 2004. "The East Asian dollar standard," China Economic Review, Elsevier, vol. 15(3), pages 325-330.
  10. repec:rus:hseeco:181565 is not listed on IDEAS
  11. Greene, William, 1999. "Marginal effects in the censored regression model," Economics Letters, Elsevier, vol. 64(1), pages 43-49, July.
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