Evaluation of Exchange-Rate, Capital-Market, and Dollarization Regimes in the Presence of Sudden Stops

HKIMR Working Paper No. 04/2005

32 Pages Posted: 23 Aug 2007

See all articles by Assaf Razin

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Yona Rubinstein

Tel Aviv University - Eitan Berglas School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2005

Abstract

The literature has not being able to identify clear-cut real effects of exchange-rate regimes on output growth. Similarly, no definitive view emerges from the literature in regard to the effects of open capital markets on macroeconomic performance. The paper attributes the failure of the literature to fundamental flaws, consisting of ignoring non-linearities in the effects of exchange rate and capital-market liberalization regimes, on the macroeconomic performance. The paper develops a methodology consisting of accounting for the crisis-prone state of the economy, summarized by a projected probability of crisis, due to sudden stops in international capital inflows. We apply the new methodology to a cross-country panel of 100 low and middle-income countries. Findings indicate that the effects of exchange rate regimes, and liberalization regimes, on macroeconomic performance go through two distinct channels: a direct channel via the real side of the economy, and an indirect channel via the financial side, which influences the probability of sudden stops. We also analyze how the projected probability of sudden stops affects the level of dollarization, and provide estimates for the effect of dollarization on growth.

Suggested Citation

Razin, Assaf and Rubinstein, Yona, Evaluation of Exchange-Rate, Capital-Market, and Dollarization Regimes in the Presence of Sudden Stops (March 2005). HKIMR Working Paper No. 04/2005. Available at SSRN: https://ssrn.com/abstract=1009027 or http://dx.doi.org/10.2139/ssrn.1009027

Assaf Razin (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Yona Rubinstein

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 5828 (Phone)
+972 3 640 9908 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
24
Abstract Views
358
PlumX Metrics