Evaluation of Currency Regimes: The Unique Role of Sudden Stops

33 Pages Posted: 8 May 2006

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

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.

Suggested Citation

Razin, Assaf and Rubinstein, Yona, Evaluation of Currency Regimes: The Unique Role of Sudden Stops. Economic Policy, Vol. 21, No. 45, pp. 119-152, January 2006. Available at SSRN: https://ssrn.com/abstract=880495 or http://dx.doi.org/10.1111/j.1468-0327.2006.00155.x

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
17
Abstract Views
560
PlumX Metrics