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Banking crises and exchange rate regimes - Is there a link?, Volume 1
Author:Domac, Ilker; Martinez-Peria, Maria Soledad; Date Stored:2001/01/10
Document Date:2000/11/30Document Type:Policy Research Working Paper
SubTopics:Economic Theory & Research; Macroeconomic Management; Economic Stabilization; Financial Economics; Fiscal & Monetary PolicyLanguage:English
Major Sector:FinanceReport Number:WPS2489
Sub Sectors:Other FinanceCollection Title:Policy, Research working paper ; no. WPS 2489
Volume No:1  

Summary: The authors investigate the links between banking crises, and exchange rate regimes, using a comprehensive data set that includes developed, and developing countries over the last two decades. In particular, they examine whether the choice of exchange rate regime affects the likelihood, cost, and duration of banking crises. Empirical results indicate that adopting a fixed exchange rate, diminishes the likelihood of a banking crisis in developing countries. But once a banking crisis occurs, its real costs - in terms of forgone output growth - are higher for countries with more stringent exchange rate requirements. The duration of crises seems not to be affected by exchange rate policy. Instead, it is influenced mainly by the size of the credit boom before the crisis.

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