TAILIEUCHUNG - Banking crises and exchange rate politics

The purpose of this paper is to examine whether the choice of exchange rate regime can affect the likelihood of banking crises in emerging countries. We estimate the impact of exchange rate arrangements on crises in a panel-data set of 56 emerging countries using a logit method. We find that adopting a fixed exchange rate diminishes the probability of occurrence of banking crises. | Journal of Applied Finance Banking vol. 2 no. 6 2012 55-71 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2012 Banking Crises and Exchange Rate Politics Feryel Ouerghi1 Abstract The purpose of this paper is to examine whether the choice of exchange rate regime can affect the likelihood of banking crises in emerging countries. We estimate the impact of exchange rate arrangements on crises in a panel-data set of 56 emerging countries using a logit method. We find that adopting a fixed exchange rate diminishes the probability of occurrence of banking crises. JEL classification numbers E52 F31 G21 Keywords Exchange rate regimes Financial crises Banking crises Logit model 1 Introduction The financial crises of the 1990s are occurred in most of the cases in countries adopting a pegged exchange rate policy. These pegged exchange rates encourage speculative attacks in the foreign exchange markets that propagate to banking sector and led to banking crises. Recently the IMF and the analysts of financial crises support the bipolar view. According to this view and in order to avoid future crises countries should allow for either flexible or irrevocably fixed exchange rate regimes. The intermediate solutions such as pegged exchange rate regimes should be avoided. Recently a number of studies analyse -at the theoretical level- the possible links between the exchange rate regime and financial stability. However the impact of exchange rate regime choice on occurrence of financial crises is largely ignored by the literature. Similarly most studies on the determinants of financial crises focus primarily on macroeconomics variables external variables and regulatory environments. 1 Assistant professor Department of Economics University of Tunis e-mail yasferyel@ Article Info Received May 27 2012. Revised August 8 2012. Published online December 20 2012 56 Feryel Ouerghi In this paper we analyse this link between the exchange rate policies and the probability of .

• Ngân hàng - Tín dụng
• Exchange rate regimes
• Financial crises
• Banking crises
• Logit model
• Exchange rate politics
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