Exchange rate regimes and banking crises: the channels of influence investigated

We investigate the effects of alternative exchange rate regimes on the probability of banking crises using a new set of classifications from the IMF that allows us to distinguish between hard and soft pegs. We find that this distinction is quite important and helps explain some of the contradictory...

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Bibliographic Details
Published in:International journal of finance and economics 2011-07, Vol.16 (3), p.256-274
Main Authors: Angkinand, Apanard P., Willett, Thomas D.
Format: Article
Language:English
Subjects:
Banking
Banking crises
Channels
Classifications
Currencies
currency crises
Domestic
domestic credit expansion
Economic crisis
Economics
exchange rate regimes
Finance
foreign borrowing
Foreign exchange rates
Linkages
Probability
Studies
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Summary:We investigate the effects of alternative exchange rate regimes on the probability of banking crises using a new set of classifications from the IMF that allows us to distinguish between hard and soft pegs. We find that this distinction is quite important and helps explain some of the contradictory results of previous studies. We go beyond analysis of the total effects on crises and investigate some of the major mechanisms through which exchange rate regimes can affect a country's susceptibility to banking crises. These are domestic credit growth, net foreign borrowing, and currency crises: we find stronger linkages for the last two channels than the first. We find evidence that the unstable middle hypothesis applies with respect to banking crises as well as currency crises. Copyright © 2010 John Wiley & Sons, Ltd.
ISSN:1076-9307
1099-1158
1099-1158
DOI:10.1002/ijfe.428