2009 Fiscal Year Final Research Report

Evaluating Capital Account Liberalization and Exchange Rate Regimes : An Empirical Study by Controlling for the Endogeneity of Policy Selection

Research Project

Project/Area Number	20730218
Research Category	Grant-in-Aid for Young Scientists (B)
Allocation Type	Single-year Grants
Research Field	Public finance/Monetary economics
Research Institution	Kobe City University of Foreign Studies
Principal Investigator	ESAKA Taro Kobe City University of Foreign Studies, 外国語学部, 准教授 (60347515)
Project Period (FY)	2008 – 2009
Keywords	為替制度 / 資本自由化 / 通貨危機 / 政策評価 / 国際金融
Research Abstract	This study evaluates the effect of de facto exchange rate regimes on the occurrence of currency crises. To estimate the effect of exchange rate regimes properly, we must control the simultaneous problem, the problem of reverse causality, and the self-selection problem of regime adoption. However, previous studies do not explicitly address these problems. To address these problems, we employ a variety of microeconometric methods and examine the effect of de facto exchange rate regimes on the occurrence of currency crises and the effect of exchange rate regimes under restricted or liberalized capital flows on the incidence of currency crises. We find that pegged regimes significantly decrease the likelihood of currency crises compared with floating regimes. We also find interesting evidence that pegged regimes with capital account liberalization significantly lower the likelihood of currency crises compared with other regimes. These results are robust to a wide variety of econometric methods and samples.

(4 results)