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Real and Financial Shocks, Exchange Rate Regimes and the Probability of a Currency Crisis

Ryota Nakatani

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the relationships among shocks, exchange rate regimes, and capital controls in relation to the probabilities of currency crises. Based on the theoretical model by Nakatani (2016, 2017a), we use panel data on 34 developing countries and apply a probit estimation. We find that both productivity shocks and country risk premium shocks trigger currency crises, whereas productivity shocks are important for severe currency crises. We also find that the effects of these shocks on the probability of a crisis are larger for floating exchange rate regimes and that capital controls mitigate the effects of productivity shocks in pegged regimes.

Keywords: Currency Crisis; Productivity Shock; Risk Premium Shock; Exchange Rate Regimes; Capital Control; Probit Model (search for similar items in EconPapers)
JEL-codes: E5 F3 F41 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
Date: 2017-10-24
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Journal Article: Real and financial shocks, exchange rate regimes and the probability of a currency crisis (2018) Downloads
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