Evaluation of exchange-rate, capital market, and dollarization regimes in the presence of sudden stops
By: Assaf Razin, Yona Rubinstein.
Contributors: Rubinstein, Yona, 1962-; National Bureau of Economic Research.
Series: NBER working paper paper series -- no. 11131.; Working paper series (National Bureau of Economic Research) -- working paper no. 11131.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 27
Subjects: Economic development -- Econometric models; Foreign exchange rates; Capital market; Monetary policy
Description: "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"--National Bureau of Economic Research web site.
Notes: "February 2005."

Includes bibliographical references (p. 23-27).

Also available in PDF from the NBER world wide web site (www.nber.org).