Growth effects of the exchange-rate regime and the capital-account openness in a crisis-prone world market
Subtitle: A nuanced view
By: Assaf Razin, Yona Rubinstein.
Contributors: Rubinstein, Yona, 1962-; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10555; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10555.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Balance of payments.; Foreign exchange.
Description: "It has been a remarkably difficult empirical task to identify clear-cut real effects of exchange-rate regimes on the open economy.  Similarly, no definitive view emerges as to the aggregate effects of capital account liberalizations.  The main hypothesis of the paper is that a direct and an indirect effect of balance-of-payments policies, geared toward exchange rate regimes and capital account openness, exert a confounding overall influence on output growth, in the presence of sudden-stop crises.  A direct channel works through the trade and financial sectors, akin to the optimal currency area arguments.  An indirect channel works through the probability of a sudden-stop crisis.  The empirical analysis disentagles these conflicting effects and demonstrates that: (i) the balance-of-payments policies significantly affect the probability of crises, and the crisis probability, in turn, negatively affects output growth; (ii) controlling for the crisis probability in the growth equation, the direct effect of balance-of-payments policies is large.  Domestic price crises (high inflation above a 20 percent threshold) affect growth only indirectly; through their positive effecton the probability of sudden-stop crises"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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