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Defaults in the 90´s: Factbook and Preliminary Lessons

  • Federico Sturzenegger
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    The literature has identified at least five approaches to the determinants of the choice of exchange rate regimes: i) optimal currency area theory; ii) exchange rate policy and the absortion of real and nominal shocks; iii) exchange rate rules as a policy crutch in credibility-challenged economies; iv) the impossible trinity in light of increasing financial globalization; and v) the balance sheet exposure to exchange rate changes in financially dollarized economies. Using both a de facto and a de jure regime classification, we test the empirical relevance of these approaches simultaneously. We find overall empirical support for all of them, although their relative relevance varies substantially between industrial and non-industrial economies. We show that regime choices, as well as deviations between actual and reported policies, can be accurately predicted by a small number of economic and political characteristics of each country. When regimes are correctly characterized, they display no time trend, suggesting that the trends typically highlighted in the exchange rate regime debate can be traced back to the evolution of their natural determinants

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    File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-102002.pdf
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    Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number veintidos.

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    Length: 33 pages
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:udt:wpbsdt:veintidos
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    Web page: http://www.utdt.edu/listado_contenidos.php?id_item_menu=4994

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    1. Roberto Chang & Andres Velasco, 1998. "Financial Fragility and the Exchange Rate Regime," NBER Working Papers 6469, National Bureau of Economic Research, Inc.
    2. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    3. Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," NBER Working Papers 8853, National Bureau of Economic Research, Inc.
    4. Roberto Chang & Andres Velasco, 1999. "Liquidity crises in emerging markets: Theory and policy," FRB Atlanta Working Paper 99-15, Federal Reserve Bank of Atlanta.
    5. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
    6. Darrell Duffie & Lasse Heje Pedersen & Kenneth J. Singleton, 2003. "Modeling Sovereign Yield Spreads: A Case Study of Russian Debt," Journal of Finance, American Finance Association, vol. 58(1), pages 119-159, 02.
    7. Reuven Glick & Michael Hutchison, 1999. "Banking and currency crises: how common are twins?," Pacific Basin Working Paper Series 99-07, Federal Reserve Bank of San Francisco.
    8. Törbjörn I. Becker & Anthony J. Richards & Yunyong Thaicharoen, 2001. "Bond Restructuring and Moral Hazard: Are Collective Action Clauses Costly?," IMF Working Papers 01/92, International Monetary Fund.
    9. Andrew Powell, 2002. "The Argentina Crisis: Bad Luck, Bad Management, Bad Politics, Bad Advice," Business School Working Papers veinticuatro, Universidad Torcuato Di Tella.
    10. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
    11. Barry Eichengreen & Christof Ruehl, 2000. "The Bail-In Problem: Systematic Goals, Ad Hoc Means," NBER Working Papers 7653, National Bureau of Economic Research, Inc.
    12. Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 481-523.
    13. Sebastian Edwards, 2002. "Does the Current Account Matter?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 21-76 National Bureau of Economic Research, Inc.
    14. John J. Merrick Jr., 1999. "Crisis Dynamics of Implied Default Recovery Ratios: Evidence From Russia and Argentina," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-052, New York University, Leonard N. Stern School of Business-.
    15. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
    16. Homi Kharas & Brian Pinto & Sergei Ulatov, 2001. "An Analysis of Russia's 1998 Meltdown: Fundamentals and Market Signals," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 1-68.
    17. Alejandro Izquierdo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability in Argentina," The World Economy, Wiley Blackwell, vol. 25(7), pages 903-923, 07.
    18. Barry Eichengreen & Ashoka Mody, 2000. "Would Collective Action Clauses Raise Borrowing Costs?," NBER Working Papers 7458, National Bureau of Economic Research, Inc.
    19. Ozler, Sule, 1992. "The evolution of credit terms : An empirical study of commercial bank lending to developing countries," Journal of Development Economics, Elsevier, vol. 38(1), pages 79-97, January.
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