Evaluation of Currency Regimes: The Unique Role of Sudden Stops

35 Pages Posted: 21 Feb 2006 Last revised: 15 Sep 2010

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: November 2005

Abstract

This paper tackles two established puzzles in international macroeconomics literature. The first is the lack of systematic difference 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 both may appear because empirical methodologies fail to account for a latent economic "crisis state," influenced by exchange-rate and capital account regimes, and to allow the effects of a policy regime on growth to depend on whether the economy is in a crisis-prone latent state. In practice, we model and estimate the latent state of the economy as a crisis probability. In the framework we propose, exchange rate and capital market liberalization regimes can 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.

Suggested Citation

Razin, Assaf and Rubinstein, Yona, Evaluation of Currency Regimes: The Unique Role of Sudden Stops (November 2005). NBER Working Paper No. w11785. Available at SSRN: https://ssrn.com/abstract=851694

Assaf Razin (Contact Author)

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

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

National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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

Centre for Economic Policy Research (CEPR)

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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)

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