Institutional variables, capital controls, exchange rates, and the severity of financial crises: A cross-country comparison.

摘要

This study analyses the effect of macroeconomic variables, corruption, law and order, exchange rate regimes, and capital controls on the severity and spread of the Asian financial crisis. The methodology involves a cross country comparison of 32 nations from three main regions: Asia, Eastern Europe and Latin America. In addition to the use of multiple Ordinary Least Squares regression analysis, bootstrap regressions are added for every regression to reinforce the robustness of the results. The study differs and adds to the other studies in the field in many ways. Mainly, it incorporates the above mentioned variables, that were previously analyzed individually, and looks into their combined effect on financial crises. In addition, it analyses the crisis under two time frames, which allows the study of the Russian and Brazilian financial crises in addition to the Asian crisis.; The study leads to four major findings. First, although macroeconomic variables are found to be important in explaining the severity of financial crises, geographical proximity and panic are found to add to their severity. Second, when the capital account is added to the study, it completely reverses the effect of the current account on the severity of the crises. Thus, capital outflows are found to play a major role in explaining the severity of financial crises. Third, the study shows that the outflow of capital from Asia had a contagious effect that led to the Russian and Brazilian crises. Fourth, stock prices and depreciation do not always react the same way to macroeconomic variables. Foreign debt and panic are particularly important in explaining the change in stock prices.