TY  - JOUR
AU  - Razin,Assaf
AU  - Rubinstein,Yona
TI  - Growth Effects of the Exchange-Rate Regime and the Capital-Account Openness in A Crisis-Prone World Market: A Nuanced View
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10555
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10555
L1  - http://www.nber.org/papers/w10555.pdf
N1  - Author contact info:
Assaf Razin
Department of Economics
Cornell University
Uris 422
Ithaca, NY 14853
Tel: 607/255-9625
Fax: 607/255-2818
E-Mail: ar256@cornell.edu

Yona Rubinstein
Brown University
Department of Economics
Box B
Providence, RI 02912
E-Mail: y.rubinstein@lse.ac.uk
AB  - 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.
ER  -