Currency Crises, Exchange Rate Regimes and Capital Account Liberalization: A Duration Analysis Approach

This paper empirically analyzes the effects of exchange rate regimes and capital account liberalization policies on the occurrence of currency crises in 21 countries over the period of 1970–1998. We examine the changes of the likelihood of currency crises under the de jure, and the de facto exchange rate regimes. We also test whether the impact of the exchange rate regimes on currency stability would be different under free and restricted capital flows. Our findings show that the likelihood of currency crises changes significantly under the de facto regimes. However, the results are sensitive to the choice of the de facto exchange rate arrangements. Furthermore, in our sample, capital control policies appear to be helpful in preventing low duration currency crises. The results are robust to a wide variety of sample and models checks.