Growth Effects of the Exchange-Rate Regime and the Capital-Account Openness in A Crisis-Prone World Market: A Nuanced View / Assaf Razin, Yona Rubinstein.

Format:

Book

Author/Creator:

Razin, Assaf.

Contributor:

National Bureau of Economic Research.

Rubinstein, Yona.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10555.

NBER working paper series no. w10555

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Growth Effects of the Exchange-Rate Regime and the Capital-Account Openness in A Crisis-Prone World Market

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

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.

Notes:

Print version record

June 2004.