Growth Effects of Exchange Rate Regimes and Capital Account Liberalization
نویسندگان
چکیده
Empirical growth equations are typically explained by (i) the history of the exchange rate regimes, (ii) capital market liberalization regimes, and (iii) actual balance of payments crises. The literature on the effects of policy switches on growth typically ignores the effect of policy on the likelihood of crises, and, in turn, the effect of crises on growth. It ignored a key explanatory variable, the probabilty of crisis, which is determined also by policy. Balance-of-payments policies affect growth both directly, and indirectly, through their effect on the probability of a crisis. The direct and indirect effects, however, typically work through the economic system in different directions. In this paper, therefore, we develop an economteric approach aimed at evaluating balance-of-payments policy by incorporating both the direct and indirect channels. Using sample of 100 countries over the period 1970 to 1998, we estimate the effects of balance-of-payments policy on growth. We find that : (i) While policy switches do affect the crisis probability, policy levels do not; (ii) Ignoring country fixed effects we find, controlling for the likelihood of facing a crisis, that both policy switches as well as policy levels affect growth, however, conditioning out country-time-invariant heterogeneity we that only policy switches affect growth. As for the long run effects, it is hard to distinguish between what is known as country fixed effects, and permanent effects of exchange rate regime and capital controls on growth. ∗Mario Henrique Simonsen Professor of Public Economics, Tel-Aviv University and Friedman Professor of International Economics, Cornell University. E-mail address: [email protected].
منابع مشابه
De facto exchange rate regimes and currency crises: Are pegged regimes with capital account liberalization really more prone to speculative attacks?
This paper empirically examines whether de facto exchange rate regimes affect the occurrence of currency crises in 84 countries over the 1980–2001 period by using the probit model. We employ the de facto classification of Reinhart and Rogoff (2004) that allows us to estimate the impact of relatively long-lived exchange rate regimes on currency crises with much greater precision. We find that pe...
متن کاملEffects of Financial Liberalization on Macroeconomic Volatilities: Applications to Economic Growth, Exchange Rate and Exchange Rate Pass-Through
متن کامل
Capital Controls and Optimal Chinese Monetary Policy
We examine optimal monetary policy under prevailing Chinese policies – including capital controls, nominal exchange rate targets, and costly sterilization of foreign capital inflows. China’s combination of capital controls and exchange rate pegs disrupts its monetary policy, precluding adjustments that could maintain macroeconomic stability following a set of shocks that mirror its experience d...
متن کاملTrade Liberalization, Exchange Rate Changes, And the Competitiveness of Carbohydrate Staple Markets in Nigeria
This study examined the effects of trade liberalization and exchange rate changes on carbohydrate staples in Nigeria. Secondary data published from 1974 to 2006 on cassava exports and rice imports as well as non-tradable carbohydrate staples were used. It was hypothesized that exchange rate changes and trade liberalization via price relatives, trade intensity and nominal protection coefficient ...
متن کاملCapital Account Liberalization, The Cost of Capital, and Economic Growth
Capital-account liberalization was once seen as an inevitable step along the path to economic development for poor countries. Liberalizing the capital account, it was said, would permit financial resources to flow from capitalabundant countries, where expected returns were low, to capital-scarce countries, where expected returns were high. The flow of resources into the liberalizing countries w...
متن کامل