currency crises, capital strongaccountstrong liberalization, and selection.pdfVIP

FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Currency Crises, Capital Account Liberalization, and Selection Bias Reuven Glick Federal Reserve Bank of San Francisco Xueyan Guo University of California, Santa Cruz and Michael Hutchison University of California, Santa Cruz Working Paper 2004-15 /publications/economics/papers/2004/wp04-15bk.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. This paper was produced under the auspices for the Center for Pacific Basin Studies within the Economic Research Department of the Federal Reserve Bank of San Francisco. Currency Crises, Capital Account Liberalization, and Selection Bias Reuven Glick Federal Reserve Bank of San Francisco Email: reuven.glick@ Xueyan Guo University of California, Santa Cruz Email: xguo@ Michael Hutchison University of California, Santa Cruz Email: hutch@ First Draft: June 2004 Current Draft: June 30, 2005 Abstract Are countries with unregulated capital flows more vulnerable to currency crises? Efforts to answer this question properly must control for “self selection” bias since countries with liberalized capital accounts may also have more sound economic policies and institutions that make them less likely to experience crises. We employ a matching and propensity score methodology to address this issue in a panel analysis of developing countries. Our results suggest that, after controlling for sample selection bias, countries with l