Financial Openness, Currency Crises, and Output Losses

Sebastian Edwards

in Financial Markets Volatility and Performance in Emerging Markets

Published by University of Chicago Press

Published in print March 2008 | ISBN: 9780226184951
Published online February 2013 | e-ISBN: 9780226185040 | DOI:
Financial Openness, Currency Crises, and Output Losses

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Using a broad multicountry data set, this chapter analyzes the relationship between restrictions to capital mobility and currency crisis, focusing on two definitions of currency crisis. The first is a substantial change in an index of macroeconomic stability, calculated as a weighted average of nominal exchange rate changes and changes (declines) in the stock of international reserves. The second is a significant change in the nominal exchange rate that is not accompanied by a (very) large change in international reserves. The chapter addresses two specific questions, both of which are related to the “contractionary devaluation” issue: What are the effects of these two different types of crises on real economic growth? And, do these effects depend on the degree of capital mobility in the country in question? The chapter also discusses the evolution of capital account restrictions during the last thirty years.

Keywords: capital mobility; currency crisis; macroeconomic stability; nominal exchange rate; international reserves; contractionary devaluation; capital account restrictions

Chapter.  9722 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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