Crises and exchange rate regimes: time to break down the bipolar view?

Combes, Jean-Louis; Minea, Alexandru; Sow, Moussé

doi:10.1080/00036846.2016.1158917

Cited by 9 publications

(8 citation statements)

References 40 publications

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“…They found that institutions are weaker in periods before and after a currency crisis than during tranquil periods. Finally, Combes, Minea, and Sow () using a panel of 90 developed and developing countries over the period 1980–2009, found that corner exchange rate regimes are not more prone to crises compared to intermediate exchange rate regimes.…”

Section: Literature Reviewmentioning

confidence: 99%

Empirics of currency crises: A duration analysis approach

Karimi

Voia

2019

Rev Financ Econ

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This paper empirically analyzes the origins of currency crises for a group of OECD economies from 1970 through 1998. We apply duration analysis to examine how the probability of a currency crisis depends on the length of non‐crisis periods, contagion channels, and macroeconomic fundamentals. Our findings confirm the negative duration dependence of a currency crisis—the likelihood of speculative attack sharply increases at the beginning of non‐crisis periods and then declines over time until it abruptly rises again. The results also indicate the hazard of a crisis increase with high values of the volatility of unemployment rates, inflation rates, contagion factors—which mostly work through trade channels, unemployment rates, real effective exchange rate, trade openness, and size of economy. To address concerns regarding validity of the identified crisis episodes, we exploit crisis episodes that are identified by a more objective approach based on the extreme value theory. Our results are robust under various specifications including two different crisis event sets that are identified on monthly and quarterly basis.

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Section: Literature Reviewmentioning

confidence: 99%

Empirics of currency crises: A duration analysis approach

Karimi

Voia

2019

Rev Financ Econ

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“…Ghosh and Ostry (2009) go even further by proving that intermediate regimes represent the balance between pegs and free floats and are associated with faster per capita output growth. Esaka (2010) and Combes and Swo (2016) criticise the bipolar view underlining the fact that it does not strictly hold in the sense that intermediate regimes are significantly more prone to currency crises than corner regimes. Therefore monetary authorities in emerging and developing economies often try to smooth exchange rate path without an official commitment to maintain the official central exchange rate (Ötker-Robe & Vávra, 2007), or claim to have a pegged exchange rate while carrying out frequent changes in the official exchange rate (Alesina & Wagner, 2006;Genberg & Swoboda, 2005).…”

Section: Introductionmentioning

confidence: 99%

Choosing the Exchange Rate Regime-a Case for Intermediate Regimes for Emerging and Developing Economies

Jurek¹

2018

EBR

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The main objective of the paper is to verify the vanishing interim regime hypothesis (so-called bipolar view) and to analyse factors that may influence the probability of use of intermediate exchange rate regimes, especially in emerging and developing economies. In order to accomplish the research objectives the evolution of exchange rate regimes is presented with the special consideration of decisions of IMF member states in this respect. Next a logistic regression model that estimates the probability of use of an intermediate regime is applied. The results achieved allow a challenge to the vanishing interim regime hypothesis. Empirical observations support this hypothesis only in advanced countries and not in their emerging and developing peers.

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“…The main issue of concern is whether the choice of exchange rate regime has a significant influence on the interaction among these macroeconomic variables. While some studies find empirical support for the view that the choice of regime plays a neutral role and does not change the behaviour of macroeconomic variables (Baxter and Stockman, 1989;Combes et al, 2016;Dedola and Leduc, 1999;Singh, 2002), others find support that the choice of exchange rate regime does indeed matter (Edwards and Yeyati, 2005;Egwaikhide et al, 2014;Erdem and Omen, 2015;Levy-Yeyati and Sturzenegger, 2003;Ye et al, 2014). Baxter and Stockman (1989), examine the performance of output, consumption, trade flows, government consumption and real exchange rates under alternative exchange-rate regimes using a sample of 49 countries.…”

Section: The Review Of Related Literaturementioning

confidence: 99%

“…They find evidence of regime neutrality and that changes in the mean of most of the macroeconomic variables are not significantly different from each other under the de facto regimes. Combes et al (2016), examine the link between exchange rate regime and crisis in both developed and developing countries from 1980 to 2009. Consistent with the regime neutrality theory, they find that the choice of exchange rate regime plays unimportant role when it comes to the likelihood of crisis irrespective of the type of crisis (banking, currency or debt crisis).…”

Section: Studies Supporting the Neutrality Viewmentioning

confidence: 99%

“…It is believed that countries with more flexible exchange rate regimes achieve faster growth and macroeconomics stability than countries with fixed exchange rates (Edwards and Yeyati, 2005;Levy-Yeyati and Sturzenegger, 2003;Rodrik, 2007), and changing from one regime to another has serious macroeconomic implications (Ye et al, 2014). However, despite this common view, many studies have reported evidence suggesting that the choice of exchange rate regime does not influence the behaviour of macroeconomic variables as well as their interactions (Baxter and Stockman, 1989;Combes et al, 2016;Dedola and Leduc, 1999;Singh, 2002).…”

Section: Introductionmentioning

confidence: 99%

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2019

IJEFR

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This study investigated a pertinent question on the lips of every Nigerian; exchange rate regime, Quo Vadis Nigeria? Nigeria, Quo Vadis (where do we go)? under two alternative managed floating regimes; Dutch Auction System and post Dutch Auction System regimes, within the Autoregressive Distributive Lag methodology using monthly data covering from July 2002 to July 2017. The results for the full sample show that none of the selected macroeconomic variables has a significant short run relationship with the nominal effective exchange rate. In the long run, all the variables, except interbank rate, show negative relationship with nominal effective exchange rate. However, while the effects of oil prices, interbank rate and the prime lending rate are significant, the effects of inflation and stock prices are insignificant. The results for the Dutch Auction System sample show little evidence of a negative short run relationship between nominal effective exchange rate and inflation while oil prices, prime lending rate, interbank rate and stock prices all show no evidence of a short run relationship with exchange rate. On the contrary, oil prices, prime lending rates and stock prices all show significant negative long run relationship with nominal effective exchange rate. The results for the post Dutch Auction System sample show evidence of a positive short run relationship between stock prices, interbank rate and nominal effective exchange rate. On the other hand, inflation, oil prices and prime lending rate show no short run relationship nominal effective exchange rate. However, there is evidence of a lagged positive relationship between inflation and nominal exchange rate. The cointegration test for post Dutch Auction System sample gives inconclusive results. We therefore, conclude that the choice of exchange rate regime matters for macroeconomics performance in Nigeria and that the closure of the Dutch Auction system by the monetary authorities significantly altered the relationship between nominal exchange effective exchange rate and macroeconomic variables.

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Crises and exchange rate regimes: time to break down the bipolar view?

Cited by 9 publications

References 40 publications

Empirics of currency crises: A duration analysis approach

Empirics of currency crises: A duration analysis approach

Choosing the Exchange Rate Regime-a Case for Intermediate Regimes for Emerging and Developing Economies

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