The role of financial development in exchange rate regime choices

Lin, Shu; Ye, Haichun

doi:10.1016/j.jimonfin.2011.02.005

Cited by 27 publications

(16 citation statements)

References 32 publications

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“…Thus, as middle‐income countries become more financially advanced, they seem to adopt flexible regimes. The finding on the level of financial development partially resonates with the results of Lin and Ye () discussed earlier. The effect of financial fragility is non‐significant for all country groups.…”

Section: Resultssupporting

confidence: 88%

“…Further, we find that higher levels of financial sector development lead middle‐income countries towards flexible regimes, a result that is in line with the existing literature (e.g. Lin & Ye, ). We do not find any evidence that financial fragility has effect on regime choice, presumably because it is a relatively short‐term phenomenon.…”

Section: Conclusion and Discussionsupporting

confidence: 91%

“…Lin and Ye (2011) examine the role played by financial development in de facto regime choice using the logit as well as survival analysis, and conclude that financial development increases the likelihood of shifting towards flexible regimes, though at the low level of financial development countries generally adopt a fixed regime. Nevertheless, Lin and Ye's (2011) pooled panel data approach does not enable them to account for country-specific heterogeneity and other associated time-invariant unobservables. Carmignani et al (2008) also estimate pooled regressions to examine the effects of a host of political and economic factors, including financial depth and capital account openness.…”

Section: (Iv) Extant Empirical Evidence On Exchange Rate Regime Choicementioning

confidence: 99%

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Persistence, Capital Account Openness, and Financial Sector Health in Exchange Rate Regime Choice

et al. 2015

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This paper investigates empirically the persistence in exchange rate regimes as well as the role of capital account openness and financial sector health (measured by financial development and financial sector fragility) in exchange rate regime determination for a panel of 143 countries covering the post‐Bretton Woods period. The results demonstrate that while low‐ and high‐income countries exhibit highly persistent exchange rate regimes, middle‐income countries display relatively lower persistence. For middle‐income countries, capital account openness and the level of financial development play important roles in exchange rate regime choice. The fragility of the financial sector does not affect the exchange rate regime determination.

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Section: Resultssupporting

confidence: 88%

Section: Conclusion and Discussionsupporting

confidence: 91%

Section: (Iv) Extant Empirical Evidence On Exchange Rate Regime Choicementioning

confidence: 99%

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Persistence, Capital Account Openness, and Financial Sector Health in Exchange Rate Regime Choice

et al. 2015

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“…For example, it is possible that the financially more liberated economies are more likely to exit from the crisis while at the same time more likely to enter the crisis (i.e., more likely to be selected into our sample). To address this concern, we again parameterize the hazard model as a probit model (with ln ( t ) included as an additional control) and apply Heckman's probit with sample selection method (Heckman, ; Lin & Ye, ).…”

Section: Empirical Methodologymentioning

confidence: 99%

Domestic financial reforms and crisis recoveries

Dai

Lin

Zou³

2019

Int. J Fin Econ

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We examine empirically whether domestic financial reforms lead to faster recoveries from financial crises. Using a duration analysis approach and financial reform indicators from Abiad, Detragiache, and Tressel (2010), we find robust evidence that a higher overall level of domestic financial liberalization is associated with a significantly shorter duration of recovery. This effect exists in both the downturn and upturn stages of a crisis but matters only for developing countries. We also check the effect of each individual dimension of domestic financial reforms and find they all contribute to significant faster crisis recoveries except for privatization of the banking sector.

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“…Policy makers with more developed financial markets should be more tolerant with exchange rate fluctuations because such financial markets would be more resilient to exchange rate volatility. Lin and Ye (2011) empirically show that countries with less developed financial markets tend to adopt fixed exchange rate regimes.…”

Section: Predictions On the Signs Of The Estimated Coefficientsmentioning

confidence: 99%

Determinants of the Trilemma Policy Combination

Ito

Kawai

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The authors thank Giovanni Capannelli, Yothin Jinjarak, Peter Morgan, Jae-Ha Park, Victor Pontines, Ganeshan Wignaraja, Yuqing Xing, and other participants at the ADBI seminar for useful comments. Jacinta Bernadette Rico provided excellent research assistance. Hiro Ito thanks Portland State University for financial support and ADBI for its hospitality while he was visiting ADBI. The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, JapanTel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.org E-mail: info@adbi.org © 2014 Asian Development Bank Institute AbstractWe present a theoretical framework for policy making based on the "impossible trinity" or the "trilemma" hypothesis. A simple optimization model shows that placing more weight in terms of preference for each of the three open macroeconomic policies-exchange rate stability, financial market openness, and monetary policy independence-contributes to a higher level of achievement in that particular policy. We then develop the first empirical framework in the literature to investigate the joint determination of the triad open macroeconomic policies based on the trilemma hypothesis. Specifically, we estimate the three policy indexes under the trilemma constraint that they must add up to a constant. By applying the seemingly unrelated regression (SUR) estimation method and employing other robustness checks, we demonstrate that simple economic and structural fundamentals determine the trilemma policy combinations. Last, we examine how deviations from the "optimal" trilemma...

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The role of financial development in exchange rate regime choices

Cited by 27 publications

References 32 publications

Persistence, Capital Account Openness, and Financial Sector Health in Exchange Rate Regime Choice

Persistence, Capital Account Openness, and Financial Sector Health in Exchange Rate Regime Choice

Domestic financial reforms and crisis recoveries

Determinants of the Trilemma Policy Combination

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