Sustainability and collapse of fixed exchange rate regimes in emerging markets.

摘要

This dissertation examines fixed exchange rate regimes in emerging economies and determines the factors that affect the sustainability and collapse of a pegged regime. The intention is to find out why some fixed exchange rate regimes last longer, to determine the macroeconomic, institutional and external factors that make a pegged regime more durable and to test the effect of self-fulfilling expectations on the collapse of a currency.;A challenge in modeling exchange rate regime duration is the existence of some unobservable cumulative effects associated with maintaining a fixed exchange rate regime that build up over the duration of the regime and affects the regime's sustainability. To address this issue, I use of a specific technique, survival analysis, which allows for explicit modeling of time-dependence and the inclusion of explanatory variables that change over time. In this model, explained in chapter two, time enters as a proxy for these unobserved persistent effects and I investigate the relative importance of the fundamentals in the economy on regime durability by considering their relation together with the effect of time itself. Using the de facto exchange rate regime classification proposed by Reinhart and Rogoff (2004), I find non-monotonic duration dependence and show that time is a significant factor for the duration of pegged regimes in emerging economies. Openness, changes in foreign reserves, GDP growth, real exchange rate misalignment and the claims on government are also found to influence the pegged regime duration. Another finding is the ineffectiveness of capital controls on pegged regime duration.;The third chapter is a specific country study in an attempt to understand the factors that make a country vulnerable to a currency crisis and test the existence of self-fulfilling behavior.;Experience and research has shown that market expectations can contribute to the occurrence of a crisis that would not have taken place if such expectations could have been prevented at first place. To detect how much of the crisis can be attributed to self-fulfilling expectations and how much to the fundamental components in the economy, I study the experience Turkey, an emerging country that has gone through two major currency crises: in 1994 and in 2000. I use a Markov Switching Model (MSM), which incorporates the effect of self-fulfilling expectations to analyze the Turkish crisis episodes for the period 1980--2005. Such a framework, which allows for sunspots, performs better than a purely fundamental-based model. The study shows that besides the fundamentals in the economy, shifts in agents' devaluation expectations have played a crucial role in the Turkish currency crises. The findings suggest that a MSM can be used in crisis models with multiple equilibria where we observe behavior discontinuity like in the recent financial crisis.