Exchange arrangements and speculative attacks: Is there a link?

Alexis CRUZ-RODRIGUEZ

Abstract


Abstract. The purpose of this article is to empirically investigate which exchange rate arrangements are associated with more speculative attacks in the foreign exchange market, a relationship which is estimated using a least squares dummy variables panel data model. Also, this article addresses the issue of measurement errors in the classification of exchange rate regimes by using four different classification schemes. Three de facto and one de jure classifications are used. Consequently, the sensitivity of these results to alternative exchange rate classifications is also tested. The empirical findings indicate clear support for fixed regimes particularly in emerging and developing countries.

Keywords. Exchange rate regimes, speculative attacks, currency crises.

JEL. F31, F33.


Keywords


Exchange rate regimes; Speculative attacks; Currency crises.

Full Text:


References


Angkinand, A., Chiu, E.M.P. & Willett, T.D. (2009). Testing the unstable middle and two corners hypotheses about exchange rate regimes. Open Economies Review, 20(1), 61-83. doi. 10.1007/s11079-007-9066-0

Asici, A.A. (2011). Exchange rate regime choice and currency crises. Economic Systems, 35(3), 419-436. doi. 10.1016/j.ecosys.2010.09.008

Bailliu, J., Lafrance, R. & Perrault, J.-F. (2001). Exchange rate regimes and economic growth in Emerging Markets. In Revisiting the Case for Flexible Exchange Rates. (317-345). Bank of Canada.

Bailliu, J., Lafrance, R. & Perrault, J.-F. (2003). Does exchange rate policy matter for growth. International Finance, 6(3), 381-414. doi. 10.1111/j.1367-0271.2003.00123.x

Bérnassy-Quéré, A., Coeure, B. & Mignon, V. (2006). On the identification of de facto currency pegs. Journal of the Japanese and International Economies 20(1), 112-127. doi. 10.1016/j.jjie.2004.11.002

Bird, G. & Mandilaras, A. (2006). Regional heterogeneity in the relationship between fiscal imbalances and foreign market pressure. World Development, 34(7), 1171-1181. doi. 10.1016/j.worlddev.2005.11.017

Bubula, A. & Otker-Rober, I. (2002). The evolution of exchange rate regimes since 1990: Evidence from de fact policies. IMF Working Paper, No.WP/02/155. [Retrieved from].

Bubula, A. & Otker-Rober, I. (2003). Are pegged and intermediate exchange rate regimes more crisis prone? IMF Working Paper, No.WP/03/223. [Retrieved from].

Calvo, G. & Reinhart, C. (2002). Fear of floating. Quarterly Journal of Economics, 117(2). 379-408. doi. 10.1162/003355302753650274

Combes, J-L., Minea, A. & Sow, M. (2016). Crises and exchange rate regimes: Time to break down the bipolar view. Applied Economics. Published online: 16 Mar 2016. 1-17.

Coulibaly, B. (2009). Currency unions and currency crises: An empirical assessment. International Journal of Finance & Economics, 14(3). 199-221. doi. 10.1002/ijfe.363

Cruz-Rodríguez, A. (2013). Choosing and assessing exchange rate regimes: A survey of the literature. Revista de Análisis Económico, 28(2), 37-61.

Dubas, J.M., Lee, B.-J. & Mark, N.C. (2005). Effective exchange rate classifications and growth. NBER Working Papers, No.11272. doi. 10.3386/w11272

Eichengreen, B., Rose, A.K., & Wyplosz, C. (1994). Speculative attacks on pegged exchange rates: An empirical exploration with special reference to the European Monetary System. NBER Working Paper, No.4898. doi. 10.3386/w4898

Eichengreen, B., Rose, A.K., & Wyplosz, C. (1996). Contagious currency crises: First tests. Scandinavian Journal of Economics, 98, 463-484. doi. 10.2307/3440879

Esaka, T. (2010a). Exchange rate regimes, capital control and currency crises: Does the bipolar view hold? Journal of International Financial Markets, Institutions and Money, 20(1), 91-108. doi. 10.1016/j.intfin.2009.09.001

Esaka, T. (2010b). De facto exchange rate regimes and currency crises: Are pegged regimes with capital account liberalization really more prone to speculative attacks? Journal of Banking & Finance 34(6), 1109-1128. doi. 10.1016/j.jbankfin.2009.11.007

Esaka, T. (2014). Are consistent pegs really more prone to currency crises? Journal of International Money and Finance, 44, 136-163. doi. 10.1016/j.jimonfin.2014.02.003

Falcetti, E. & Tudela, M. (2006). Modelling currency crises in emerging markets: A dynamic probit model with unobserved heterogeneity and autocorrelated errors. Oxford Bulletin of Economics and Statistics, 68(4), 445-471. doi. 10.1111/j.1468-0084.2006.00172.x

Frankel, J. & Wei, S.-J. (2008). Estimation of de facto exchange rate regimes: Synthesis of the techniques for inferring flexibility and basket weights. IMF Staff Papers, 55(3), 384-416. doi. 10.5089/9781589067240.024

Girton, L. & Roper, D. (1977). A monetary model of exchange market pressure applied to the postwar Canadian experience. American Economic Review, 67, 537-548.

Ghosh, A.R., Gulde, A.-M., Ostry, J.D., & Wolf, H. (1997). Does the nominal exchange rate regime matter? NBER Working Paper Series, No.5874. doi. 10.3386/w5874

Ghosh, A.R., Gulde, A.-M., & Wolf, H.C. (2002). Exchange Rate Regimes: Choices and Consequences. The MIT Press.

Ghosh, A.R., Ostry, J.D. & Qureshi, M.S. (2015). Exchange rate management and crisis susceptibility: A reassessment. IMF Economic Review, 63(1), 238-276. doi. 10.1057/imfer.2014.29

Haile, F.D. & Pozo, S. (2006). Exchange rate regimes and currency crises: An evaluation using extreme value theory. Review of International Economics, 14(4), 554-570. doi. 10.1111/j.1467-9396.2006.00643.x

Habermeier, K., Kokenyne, A., Veyrune, R. & Anderson, H. (2009). Revised system for the classification of exchange rate arrangements. IMF Working Paper, No.WP/09/211. [Retrieved from].

Ilzetski, E., Reinhart, C. & Rogoff, K., (2010). The country chronologies and background material to exchange rate arrangements into the 21st Century: Will the anchor currency hold? Unpublished Manuscript.

IMF (1997). World Economic and Financial Surveys, chapter World Economic Outlook, pages 78-97. International Monetary Fund. Washington.

Jakubiak, M. (2001). Choice of the exchange rate regime and currency crashes: Evidence of some emerging economies. In Dabrowski, M. (editor). Currency Crises in Emerging Markets: Selected Comparative Studies, volume 41 of Case Reports, (pp.29-46). Center for Social and Economic Research.

Kaminsky, G., Lizondo, S., & Reinhart, C. (1998). Leading indicators of currency crises. Staff Papers, 45(1), 1-48. [Retrieved from].

Karimi, M. & Voia, M. C. (2014). Currency crises, exchange rate regimes and capital account liberalization: A duration analysis approach. In G.F. Schleer-van (Editor). Advances in Non-linear Economic Modeling: Theory and Applications. Serie: Dynamic Modeling and Econometrics in Economics and Finance, Vol. 17.

Komulainen, T., & Lukkarila, J. (2003). What drives financial crises in emerging markets? Emerging Markets Review, 4(3), 248-272. doi. 10.1016/S1566-0141(03)00039-6

Krugman, P. (1979). A model of balance of payments crises. Journal of Money, Credit and Banking, 11, 311-325. doi. 10.2307/1991793

Kumar, M.S., Moorthy, U., & Perraudin, W. (2003). Predicting emerging market currency crashes. Journal of Empirical Finance, 10(4), 427-454. doi. 10.1016/S0927-5398(02)00068-3

Klein, M.W. & Shambaugh, J.C. (2008). The dynamics of exchange rate regimes: Fixes, floats, and flips. Journal of International Economics, 75(1), 70–92. doi. 10.1016/j.jinteco.2007.10.003

Levy-Yeyati, E. & Sturzenergger, F. (2005). Classifying exchange rate regimes: Deeds vs. words. European Economic Review, 49, 1603-1635. doi. 10.1016/j.euroecorev.2004.01.001

Moreno, R. (2001). Pegging and stabilization policy in developing countries. Federal Reserve Bank of San Francisco Economic Review. pp.17-29. [Retrieved from].

Peltonen, T.A. (2006). Are emerging market currency crises predictable? A test. European Working Paper Series, No.571. [Retrieved from].

Poirson, H. (2002). How do countries choose their exchange rate regime? IMF Working Paper, No.WP/01/46. [Retrieved from].

Reinhart, C. & Rogoff, K. S. (2004). The modern history of exchange rate arrangements: A reinterpretation. Quarterly Journal of Economics, 119(1), 1-48. doi. 10.1162/003355304772839515

Rogoff, K.S., Husain, A.M., Mody, A., Brooks, R., & Oomes, N. (2003). Evolution and performance of exchange rate regimes. IMF Working Paper, No.WP/03/243. [Retrieved from].

Sachs, J., Tornell, A., & Velasco, A. (1996). Financial crises in emerging markets: The lessons from 1995. Brooking Papers on Economy Activity, 1, 147-215.

Shambaugh, J.C. (2004). The effect of fixed exchange rates on monetary policy. Quarterly Journal of Economics, 119(1), 330-357. doi. 10.1162/003355304772839605

Tudela, M. (2004). Explaining currency crises: A duration model approach. Journal of International Money and Finance, 23(5), 799-816. doi. 10.1016/j.jimonfin.2004.03.011




DOI: http://dx.doi.org/10.1453/jepe.v8i3.2229

Refbacks

  • There are currently no refbacks.




.......................................................................................................................................................................................................................................................................................................................................

Journal of Economics and Political Economy - J. Econ. Pol. Econ. - JEPE - www.kspjournals.org

ISSN: 2148-8347

Editor: jepe@ksplibrary.org   Secretarial: secretarial@ksplibrary.org   Istanbul - Turkey.

Copyright © KSP Library