Evaluation of currency regimes: the unique role of sudden stops

Assaf Razin and Yona Rubinstein

Economic Policy, 2006, vol. 21, issue 45, pages 119-152

Abstract: "This paper tackles two established puzzles in international macroeconomics literature. The first is the lack of systematic differences in the macroeconomic performance across exchange rate regimes. The second is the absence of a clear empirical relationship between macroeconomic performance and capital-account liberalization. We suggest that these negative findings may be due to empirical methods that fail to account for a latent economic 'crisis state', influenced by exchange-rate and capital account regimes, and to allow that latent variable to influence the growth effects of policy regimes. In practice, we model and estimate the latent state of the economy as a crisis probability. Our proposed framework of analysis allows exchange rate and capital-market liberalization regimes to have both a direct effect on short-term growth, and an indirect effect on growth that is channelled through their effects on the crisis probability. The empirical decomposition of the total effect into two conflicting effects helps resolve the puzzles." Copyright © CEPR, CES, MSH, 2006.

View citations in EconPapers

Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0327.2006.00155.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Evaluation of Currency Regimes: The Unique Role of Sudden Stops (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0266-4658

Access Statistics for this article

Economic Policy is edited by Giuseppe Bertola, Philippe Martin and Paul Seabright

More articles in Economic Policy from CEPR, CES, MSH
Series data maintained by Christopher F. Baum ().