The determinants of currency crises : a political economy approach / Björn Rother.

Format:

Book

Author/Creator:

Rother, Bjoern.

Language:

English

Subjects (All):

Currency crises.

Monetary policy.

Physical Description:

ix, 188 pages : illustrations ; 23 cm

Place of Publication:

Basingstoke : Palgrave Macmillan, 2009.

Summary:

A lot of research has been carried out on currency crises, but the existing literature largely fails to adequately recognize the role of politics in creating financial turbulence. This book explores the role of political factors in the occurrence of currency crises, using an eclectic approach that blends case study methodology, a rigorous theoretical discussion, and econometric analysis.

It starts out with a discussion of political developments in four prominent crisis cases, including Turkey and Argentina in the early 2000s, before discussing various extensions of a workhorse model of the economics literature, two of which are original, to show how upcoming elections, intra-governmental conflict, and lobbying activity can impact the stability of an exchange rate regime. The econometric analysis uses a diverse sample of 69 countries over 1975-97 to determine whether the inclusion of political variables can make a difference in crisis prediction without adding too much complexity, compared with standard early-warning-systems models that rely exclusively on macroeconomic fundamentals.

This book provides a thorough and in-depth report, seeking to translate concepts from the discipline of political science into the language of economics. It is essential reading for all interested in international political economy and financial crises.

Contents:

1 Introduction 1

2 Some Clues from History 7

2.1 Introduction 7

2.2 Ending gold convertibility in the 1930s 9

2.3 Coalition bickering in Turkey, 2000-2001 14

2.4 Meltdown in Argentina, 1991-2002 19

2.5 Emerging political patterns 26

3 Political-Economy Crisis Models 31

3.1 Introduction 31

3.2 A basic second-generation model 33

3.2.1 The credibility problem of currency pegs 34

3.2.2 Two types of commitment devices 39

3.3 Uncertainty and the role of elections 44

3.4 A fiscal veto player 51

3.4.1 Currency crises and fiscal policy decisions 54

3.4.2 The scope for intra-governmental conflict 64

3.4.3 A stochastic fiscal target 68

3.5 Lobbying and exchange rate stability 74

4 The Role of Politics in Crisis Prediction 84

4.1 Introduction 84

4.2 Literature survey 86

4.3 Data set and empirical strategy 91

4.3.1 Country sample and crisis measure 92

4.3.2 The choice of regressors 95

4.3.3 Empirical strategy 100

4.4 Key findings 102

4.4.1 Descriptive statistics 103

4.4.2 Political-economy logit models 107

4.5 Robustness checks 119

4.6 Extensions 123

4.6.1 The link between elections and crises 123

4.6.2 The link between left Governments and crises 126

5 Conclusion 128.

Notes:

Includes bibliographical references and index.

ISBN:

9780230221819

0230221815

OCLC:

318674389