currency
Narges Nasiri; Seyed Komail Tayebi
Abstract
The purpose of this paper is to specify an early warning system for currency crisis and to investigate the role of capital control together with other warning indicators in the crisis. Increasing mobility of capital and liberalization in international financial flows is one of important dimensions of ...
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The purpose of this paper is to specify an early warning system for currency crisis and to investigate the role of capital control together with other warning indicators in the crisis. Increasing mobility of capital and liberalization in international financial flows is one of important dimensions of globalization, which has significant benefits to many countries worldwide. However, due to negative impacts on exchange rates as well as currency crises, financial liberalizations followed by some Latin American and Southeast Asian countries raised concerns in the last decade of the twentieth century. Hence the question: can capital control play a role in preventing or exacerbating the currency crisis? This study evaluates the relationship between capital control index and currency crisis and also examines the role of this variable as a warning indicator. Since the main application of the early warning systems is crisis forecasting, the purpose is to model the early warning indicators of currency crisis using Bayesian averaging method. To achieve this, 70 variables were examined for 60 countries during the period 1975-2019, both in floating and non-floating exchange rate systems. The results showed that capital control has a significant effect on reducing the occurrence of currency crisis, also different capital control indicators do not have the same warning power. In addition, different currency systems are effective in changing the power and rank of warning variables, especially for the use of capital control index.
seyed komail tayebi; Abbas Mohammadzadeh
Volume 14, Issue 43 , July 2010, , Pages 161-187
Abstract
Capital mobility has been an important part of the economic reforms in many developing countries since the early 1990s, after realization of the benefits of decreasing capital control during 1970s. However, capital liberalization plan has caused major economic crisis in some countries making the policy ...
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Capital mobility has been an important part of the economic reforms in many developing countries since the early 1990s, after realization of the benefits of decreasing capital control during 1970s. However, capital liberalization plan has caused major economic crisis in some countries making the policy makers more causios about the plan. In this study, we have used data of 70 selected developing economies over the period 1996-2005 to investigate the effect of capital control on the currency crises. Applying the probit panel data approach, the results show a significant inverse effect of capital control on currency crises in the sampling countries. Also, a higher degree of capital control is accompanied by the lower probability of currency crisis.
