Exchange Rate Regimes and Currency Crises: An Evaluation Using Extreme Value Theory

17 Pages Posted: 16 Aug 2006

See all articles by Fasika Damte Haile

Fasika Damte Haile

HSBC Card Services

Susan Pozo

Western Michigan University - Department of Economics

Abstract

We test whether the exchange regime in place has an impact on the vulnerability of countries to currency crises. Our paper is distinguishable from others (i) in its use of extreme value theory to identify currency crisis periods and (ii) in using two separate designations for the exchange regime in place. The first is the self-reported or announced exchange rate system. The second classification scheme, by Levy-Yeyati and Sturzenegger, is based on the relative movements of international reserves and exchange rates. The Levy-Yeyati and Sturzenegger procedure is intended to reveal the actual as distinct from the "legal" exchange arrangement. We find, interestingly, that the announced exchange regime has an impact on the likelihood of currency crises, while the "true" or observed regime does not. Announced pegged exchange regimes increase the risk of currency crisis even if, in reality, the exchange rate system in place is not pegged.

Suggested Citation

Haile, Fasika Damte and Pozo, Susan, Exchange Rate Regimes and Currency Crises: An Evaluation Using Extreme Value Theory. Review of International Economics, Vol. 14, No. 4, pp. 554-570, September 2006, Available at SSRN: https://ssrn.com/abstract=924469 or http://dx.doi.org/10.1111/j.1467-9396.2006.00643.x

Fasika Damte Haile (Contact Author)

HSBC Card Services

Las Vegas, NV
United States

Susan Pozo

Western Michigan University - Department of Economics ( email )

1903 West Michigan Avenue
Kalamazoo, MI 49008
United States
269-387-5553 (Phone)
269-387-5637 (Fax)

HOME PAGE: http://homepages.wmich.edu/~pozo/

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