Currency Crises, Capital Account Liberalization, and Selection Bias

Reuven Glick, Xueyan Guo and Michael Hutchison
Additional contact information
Xueyan Guo: University of California, Santa Cruz

No 04-11, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: Are countries with unregulated capital flows more vulnerable to currency crises? Efforts to answer this question properly must control for “self selection” bias since countries with liberalized capital accounts may also have more sound economic policies and institutions that make them less likely to experience crises. We employ a matching and propensity score methodology to address this issue in a panel analysis of developing countries. Our results suggest that, after controlling for sample selection bias, countries with liberalized capital accounts experience a lower likelihood of currency crises. That is, when two countries have the same likelihood of allowing free movement of capital (based on historical evidence and a very similar set of identical economic and political characteristics at a point in time)—and one country imposes controls and the other does not-- the country without controls has a lower likelihood of experiencing a currency crisis. This result is at odds with the conventional wisdom and suggests that the benefits of capital market liberalization for external stability are substantial.

Pages: 18 pages
Date: 2004-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://web.econ.ku.dk/epru/files/wp/wp-04-11.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://web.econ.ku.dk/epru/files/wp/wp-04-11.pdf [301 Moved permanently]--> https://web.econ.ku.dk/epru/files/wp/wp-04-11.pdf)

Related works:
Journal Article: Currency Crises, Capital-Account Liberalization, and Selection Bias (2006)
Working Paper: Currency crises, capital account liberalization, and selection bias (2005)
Working Paper: Currency Crises, Capital Account Liberalization, and Selection Bias (2004)
Working Paper: Currency Crises, Capital Account Liberalization, and Selection Bias (2004)
Working Paper: Currency Crises, Capital Account Liberalization, and Selection Bias (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:04-11

Access Statistics for this paper

More papers in EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics �ster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().