Doctor Educationis / The increase in trade, the increasing internationalisation of production and the improvements in communications, coupled with legalisation of foreign currency instruments have led to a liberalisation of the capital account in a growing number of countries. In line with this trend towards greater reliance on the open market, many governments of developing countries too, have considered the possibility of fully opening their capital accounts. In South Africa the issue was raised again in October 1991 when the financial rand discount dropped to 5.5 percent. This paper will attempt to provide a background to capital account liberalisation in general, and South

China’s goal of eventually having the renminbi (RMB) be “fully convertible” necessarily requires that its capital account be fully liberated; this paper investigates the on-going changes of the implemented capital controls by China and China’s progress on liberalizing the country’s capital account. The first portion of the paper studies deviations of the covered interest parity, a common measure of capital controls. Econometrical analysis provides evidence for significant and persistent RMB/USD interest rate differentials, calculated from monthly data of 1-month yields for the sample period of 1999 to 2014. At the same time, evidence for cointegration between the onshore and offshore yield suggests that capital flows are not fully restrictive in the long run. The second portion of the paper analyzes constructed de jure capital control indices based on IMF’s AREAER documents following Chen and Qian (2015), and actual capital account flows based on China’s Balance of Payments. The constructed de jure indices quantify the intensity of changes of capital controls, capturing the gradualist style that China adopts in implementing its policies. The index reveals that China has been increasing its pace of capital account liberalization in the recent years compared to the past, and in particular, prioritizes liberalizing controls on outward FDI flows and equity securities inflows. The constructed de jure indices and the respective flows for FDI and equity securities are found to be highly correlated, implying that flows have been responsive to changes in the controls. It also indicates that prior to the restriction lift offs, the capital controls had been relatively effective.

(None) Technical Summary of Thesis: The topic of my thesis is currency crisis. Currency crises have been a recurrent feature of the international economy from the invention of paper money. They are not confined to particular economies or specific region. They take place in developed, emerging, and developing countries and are spread all over the globe. Countries that experience currency crises face economic losses that can be huge and disruptive. However, the exacted toll is not only financial and economic, but also human, social, and political. It is clear that the currency crisis is a real threat to financial stability and economic prosperity. The main objective of this thesis is to analyze the determinants of currency crises for twenty OECD countries and South Africa from 1970 through 1998. It systematically examines the role of economic fundamentals and contagion in the origins of currency crises and empirically attempts to identify the channels through which the crises are being transmitted. It also examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. The first chapter identifies the episodes of currency crisis in our data set. Determining true crisis periods is a vital step in the empirical studies and has direct impact on the reliability of their estimations and the relevant policy implications. We define a period as a crisis episode when the Exchange Market Pressure (EMP) index, which consists of changes in exchange rates, reserves, and interest rates, exceeds a threshold. In order to minimize the concerns regarding the accuracy of identified crisis episodes, we apply extreme value theory, which is a more objective approach compared to other methods. In this chapter, we also select the reference country, which a country’s currency pressure index should be built around, in a more systematic way rather than by arbitrary choice or descriptive reasoning. The second chapter studies the probability of a currency exiting a tranquil state into a crisis state. There is an extensive literature on currency crises that empirically evaluate the roots and causes of the crises. Despite the interesting results of the current empirical literature, only very few of them account for the influence of time on the probability of crises. We use duration models that rigorously incorporate the time factor into the likelihood functions and allow us to investigate how the amount of time that a currency has already spent in the tranquil state affects the stability of a currency. Our findings show that high values of volatility of unemployment rates, inflation rates, contagion factors (which mostly work through trade channels), unemployment rates, real effective exchange rate, trade openness, and size of economy increases the hazard of a crisis. We make use of several robustness checks, including running our models on two different crisis episodes sets that are identified based on monthly and quarterly type spells. The third chapter examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. As in our previous paper, duration analysis is our methodology to study the probability of a currency crisis occurrence under different exchange rate regimes and capital mobility policies. The third chapter finds that there is a significant link between the choice of exchange rate regime and the incidence of currency crises in our sample. Nevertheless, the results are sensitive to the choice of the de facto exchange rate system. Moreover, in our sample, capital control policies appear to be helpful in preventing low duration currency crises. The results are robust to a wide variety of sample and models checks.

(None) Technical Summary of Thesis: The topic of my thesis is currency crisis. Currency crises have been a recurrent feature of the international economy from the invention of paper money. They are not confined to particular economies or specific region. They take place in developed, emerging, and developing countries and are spread all over the globe. Countries that experience currency crises face economic losses that can be huge and disruptive. However, the exacted toll is not only financial and economic, but also human, social, and political. It is clear that the currency crisis is a real threat to financial stability and economic prosperity. The main objective of this thesis is to analyze the determinants of currency crises for twenty OECD countries and South Africa from 1970 through 1998. It systematically examines the role of economic fundamentals and contagion in the origins of currency crises and empirically attempts to identify the channels through which the crises are being transmitted. It also examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. The first chapter identifies the episodes of currency crisis in our data set. Determining true crisis periods is a vital step in the empirical studies and has direct impact on the reliability of their estimations and the relevant policy implications. We define a period as a crisis episode when the Exchange Market Pressure (EMP) index, which consists of changes in exchange rates, reserves, and interest rates, exceeds a threshold. In order to minimize the concerns regarding the accuracy of identified crisis episodes, we apply extreme value theory, which is a more objective approach compared to other methods. In this chapter, we also select the reference country, which a country’s currency pressure index should be built around, in a more systematic way rather than by arbitrary choice or descriptive reasoning. The second chapter studies the probability of a currency exiting a tranquil state into a crisis state. There is an extensive literature on currency crises that empirically evaluate the roots and causes of the crises. Despite the interesting results of the current empirical literature, only very few of them account for the influence of time on the probability of crises. We use duration models that rigorously incorporate the time factor into the likelihood functions and allow us to investigate how the amount of time that a currency has already spent in the tranquil state affects the stability of a currency. Our findings show that high values of volatility of unemployment rates, inflation rates, contagion factors (which mostly work through trade channels), unemployment rates, real effective exchange rate, trade openness, and size of economy increases the hazard of a crisis. We make use of several robustness checks, including running our models on two different crisis episodes sets that are identified based on monthly and quarterly type spells. The third chapter examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. As in our previous paper, duration analysis is our methodology to study the probability of a currency crisis occurrence under different exchange rate regimes and capital mobility policies. The third chapter finds that there is a significant link between the choice of exchange rate regime and the incidence of currency crises in our sample. Nevertheless, the results are sensitive to the choice of the de facto exchange rate system. Moreover, in our sample, capital control policies appear to be helpful in preventing low duration currency crises. The results are robust to a wide variety of sample and models checks.

This dissertation includes three chapters. The first chapter studies the question of whether countries with different fiscal capacity should optimally have different ex-ante minimum bank capital requirements. In an environment with endogenously incomplete markets and overinvestment because of moral hazard and pecuniary externalities, I show that countries with larger fiscal capacity should have lower minimum ex-ante bank capital requirements. I also show that, in addition to the minimum capital requirement, regulators in countries with a concentrated financial sector and large fiscal capacity (which are also countries with strong moral hazard) should impose a limit on the amount of liquidity pledged by financial institutions in a crisis state (for example, restrict the amount of put options/CDS contracts sold by financial institutions). The second chapter studies the welfare implications of a concentrated, imperfectly competitive banking sector, which faces a bank net worth constraint in a small open economy (SOE) environment. There are two standard sources of inefficiency --- pecuniary externalities, which lead to overinvestment, and a standard monopolistic underinvestment force. I show that the optimal policy instruments include subsidies on firm borrowing costs in certain periods and capital account controls in others, which is a good proxy for the behavior of emerging markets. For every country, there exists a financial sector with a particular banking sector concentration, for which the inefficiencies offset each other and no government intervention is required in some periods. Furthermore, this paper documents a novel theoretical result --- the interaction between future binding bank net worth constraints and dynamic (future) underinvestment could lead to ex-ante overinvestment even in economies with a single monopolistic bank where there are no pecuniary externalities. The last third chapter, which is coauthored with Kenneth Rogoff, evaluates a new class of exchange rate forecasting studies, which claim that structural models are getting closer to being able to forecast exchange rates at short horizons. We argue that misinterpretation of some new out-of-sample tests for nested models, over-reliance on asymptotic test statistics, and failure to sufficiently check robustness to alternative time windows have led many studies to overstate even the relatively thin positive results that have been found. / Economics

(None) Technical Summary of Thesis: The topic of my thesis is currency crisis. Currency crises have been a recurrent feature of the international economy from the invention of paper money. They are not confined to particular economies or specific region. They take place in developed, emerging, and developing countries and are spread all over the globe. Countries that experience currency crises face economic losses that can be huge and disruptive. However, the exacted toll is not only financial and economic, but also human, social, and political. It is clear that the currency crisis is a real threat to financial stability and economic prosperity. The main objective of this thesis is to analyze the determinants of currency crises for twenty OECD countries and South Africa from 1970 through 1998. It systematically examines the role of economic fundamentals and contagion in the origins of currency crises and empirically attempts to identify the channels through which the crises are being transmitted. It also examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. The first chapter identifies the episodes of currency crisis in our data set. Determining true crisis periods is a vital step in the empirical studies and has direct impact on the reliability of their estimations and the relevant policy implications. We define a period as a crisis episode when the Exchange Market Pressure (EMP) index, which consists of changes in exchange rates, reserves, and interest rates, exceeds a threshold. In order to minimize the concerns regarding the accuracy of identified crisis episodes, we apply extreme value theory, which is a more objective approach compared to other methods. In this chapter, we also select the reference country, which a country’s currency pressure index should be built around, in a more systematic way rather than by arbitrary choice or descriptive reasoning. The second chapter studies the probability of a currency exiting a tranquil state into a crisis state. There is an extensive literature on currency crises that empirically evaluate the roots and causes of the crises. Despite the interesting results of the current empirical literature, only very few of them account for the influence of time on the probability of crises. We use duration models that rigorously incorporate the time factor into the likelihood functions and allow us to investigate how the amount of time that a currency has already spent in the tranquil state affects the stability of a currency. Our findings show that high values of volatility of unemployment rates, inflation rates, contagion factors (which mostly work through trade channels), unemployment rates, real effective exchange rate, trade openness, and size of economy increases the hazard of a crisis. We make use of several robustness checks, including running our models on two different crisis episodes sets that are identified based on monthly and quarterly type spells. The third chapter examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. As in our previous paper, duration analysis is our methodology to study the probability of a currency crisis occurrence under different exchange rate regimes and capital mobility policies. The third chapter finds that there is a significant link between the choice of exchange rate regime and the incidence of currency crises in our sample. Nevertheless, the results are sensitive to the choice of the de facto exchange rate system. Moreover, in our sample, capital control policies appear to be helpful in preventing low duration currency crises. The results are robust to a wide variety of sample and models checks.

(None) Technical Summary of Thesis: The topic of my thesis is currency crisis. Currency crises have been a recurrent feature of the international economy from the invention of paper money. They are not confined to particular economies or specific region. They take place in developed, emerging, and developing countries and are spread all over the globe. Countries that experience currency crises face economic losses that can be huge and disruptive. However, the exacted toll is not only financial and economic, but also human, social, and political. It is clear that the currency crisis is a real threat to financial stability and economic prosperity. The main objective of this thesis is to analyze the determinants of currency crises for twenty OECD countries and South Africa from 1970 through 1998. It systematically examines the role of economic fundamentals and contagion in the origins of currency crises and empirically attempts to identify the channels through which the crises are being transmitted. It also examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. The first chapter identifies the episodes of currency crisis in our data set. Determining true crisis periods is a vital step in the empirical studies and has direct impact on the reliability of their estimations and the relevant policy implications. We define a period as a crisis episode when the Exchange Market Pressure (EMP) index, which consists of changes in exchange rates, reserves, and interest rates, exceeds a threshold. In order to minimize the concerns regarding the accuracy of identified crisis episodes, we apply extreme value theory, which is a more objective approach compared to other methods. In this chapter, we also select the reference country, which a country’s currency pressure index should be built around, in a more systematic way rather than by arbitrary choice or descriptive reasoning. The second chapter studies the probability of a currency exiting a tranquil state into a crisis state. There is an extensive literature on currency crises that empirically evaluate the roots and causes of the crises. Despite the interesting results of the current empirical literature, only very few of them account for the influence of time on the probability of crises. We use duration models that rigorously incorporate the time factor into the likelihood functions and allow us to investigate how the amount of time that a currency has already spent in the tranquil state affects the stability of a currency. Our findings show that high values of volatility of unemployment rates, inflation rates, contagion factors (which mostly work through trade channels), unemployment rates, real effective exchange rate, trade openness, and size of economy increases the hazard of a crisis. We make use of several robustness checks, including running our models on two different crisis episodes sets that are identified based on monthly and quarterly type spells. The third chapter examines the links between the incidence of currency crises and the choice of exchange rate regimes as well as the impact of capital market liberalization policies on the occurrence of currency crises. As in our previous paper, duration analysis is our methodology to study the probability of a currency crisis occurrence under different exchange rate regimes and capital mobility policies. The third chapter finds that there is a significant link between the choice of exchange rate regime and the incidence of currency crises in our sample. Nevertheless, the results are sensitive to the choice of the de facto exchange rate system. Moreover, in our sample, capital control policies appear to be helpful in preventing low duration currency crises. The results are robust to a wide variety of sample and models checks.

[pt] O objetivo desta dissertação é analisar como fatores políticos e institucionais afetam a probabilidade de ocorrência de uma parada brusca de financiamento externo e quais os custos deste evento em termos de bem- estar para o país. Utilizando uma ampla base de dados em painel, o presente trabalho deixa claro que sudden stops geram, além de custos econômicos, elevados custos ao bem-estar nacional. O resultado é robusto frente a outras especificações dinâmicas e indica que uma parada brusca custa ao país 1.25 pontos percentuais de consumo/PIB no ano do evento. Dado o expressivo impacto sobre o bem-estar social, busca-se analisar que fatores aumentam ou diminuem a probabilidade de ocorrência de uma parada brusca nos países. Conclui-se então que variáveis políticas são relevantes para determinar a probabilidade de ocorrência do evento, desde que sejam incluídas neste grupo variáveis que meçam a extensão do poder executivo e da democracia nacional. Variáveis que regulam o processo de transição e a extensão do poder executivo demonstraram ter impactos altamente significantes sobre a probabilidade de ocorrência de uma parada brusca, tanto em termos estatísticos quanto em termos de impacto absoluto. / [en] The main objectives of this dissertation are to analyze how political and institutional factors affect the likelihood of a sudden stop of external financing and to measure the costs of this event in terms of national welfare. After analyzing a wide panel database, we conclude that a sudden stop generates, besides economic effects, high costs to national welfare. The result is robust to other dynamic specifications and is estimated as a fall of 1.25 percentage points of consumption/GDP in the year of the event. This work also makes clear that political variables are relevant to determine the likelihood of a sudden stop since we include variables that measure the extent of executive power and national democracy. Variables that regulate the transitional process and extent of Executive`s power showed high significant statistical and absolute impacts on the probability of an event.

Depuis le milieu des années 1980, les pays en développement ainsi que d'autres pays membres du Fonds monétaire international (FMI) se sont engagés dans le processus de libéralisation du compte de capital dans le cadre de leurs programmes d'ajustement structurels et de l'intégration économique. Particulièrement, la libre circulation internationale des capitaux était perçue comme étant une solution pour collecter plus d'épargne, accroître les Investissements Direct Étrangers (IDE) et stimuler par la suite la croissance économique à long terme. Cette initiative a entraîné une forte hausse des flux d'investissement internationaux pendant les deux dernières décennies, la région MENA a, cependant, reçu seulement 6.5% du total des flux mondiaux des IDE. Cela soulève deux questions importantes à savoir : comment la libéralisation du compte de capital stimule les IDE? Et comment les IDE favorisent-ils la croissance économique ? Dés lors, dans cette thèse, nous examinons les déterminants des IDE dans la région MENA et leur impact sur la croissance économique tout en tenant compte du rôle de la libéralisation du compte de capital et la qualité institutionnelle. À cette fin, nous utilisons un modèle en panel dynamique estimé par la Méthode des Moments Généralisés (GMM) en système pour un échantillon de 17 pays de la région MENA sur la période entre 1985 et 2009.Les résultats montrent que la stabilité politique couplé à une politique de libéralisation du compte de capital stimule les IDE dans la région MENA. En particulier, l'impact positif de la libéralisation de compte de capital sur les flux d'IDE dans la région MENA est conditionné par le renforcement de la qualité des institutions et la réduction des risques politiques. Cependant, bien que les facteurs institutionnels s'avèrent être importants dans le choix d'implantation des investisseurs étrangers, la corruption et la bureaucratie ont augmenté les flux d'IDE dans les pays les plus ouverts financièrement de la région MENA.En ce qui concerne le rôle des IDE ainsi que leurs déterminants dans la promotion de la croissance économique, les résultats révèlent que les IDE, la qualité des institutions et la libéralisation du compte de capital sont des facteurs stimulateurs de croissance dans la région MENA. Néanmoins, leurs influences sont différents selon qu'il s'agit des pays membres du Conseil de Coopération du Golfe (CCG) ou non. Alors que, l'effet des IDE sur la croissance est positif dans les pays de GCC et négatif dans les pays non-membres de GCC, l'impact de la libéralisation du compte de capital et la qualité institutionnelle dans les pays non-membres de GCC sont positifs mais moins important que celui observé dans les pays de GCC. Les résultats révèlent également que, contrairement aux pays membres de GCC, la politique de libéralisation du compte de capital dans les pays non-membres de GCC ont réduit les avantages des IDE sur la croissance. Enfin, les résultats montent que les pays qui ont un cadre institutionnel sein bénéficient plus de l'effet de la libéralisation du compte de capital sur la croissance économique. / Ever since the mid-1980's, developing countries as well as other member countries of the International Monetary Fund (IMF) have engaged in the process of capital account liberalization as part of their structural adjustment programs and economic integration agenda. The motive behind the removal of restrictions on capital account transactions was to attract capital flows mainly, the Foreign Direct Investment (FDI), which is considered as an engine of economic growth. This initiative has led to a surge in international investment flows over the past two decades, the MENA region has, however, received only 6.5% of the global FDI inflows. This raises two important issues and policy challenge for the region, namely, how does capital account liberalization affect FDI inflows? And how does FDI promote economic growth? In this thesis, we examine the determinants of FDI in the MENA region and their impact on economic growth by focusing on the role of capital account liberalization and institutional quality. To this end, we conduct two empirical studies by using a GMM-System estimator developed for the dynamic model over the period between 1985 and 2009 for a sample of 17 MENA countries. Our findings reveal that while the level of capital account openness alone may discourage the inflows of FDI, if it is coupled with higher levels of institutional development or political stability, it can have a net positive impact on the volume of FDI inflows. MENA countries that are able to reap the benefits of the capital openness policy satisfy certain threshold conditions regarding the level of political stability and institutional quality. However, although institutional factors appear to be important in the location choice of FDI, corruption and bureaucracy have increased FDI inflows in the financially open countries in the region. Regarding the role of FDI and their determinants in boosting economic growth, we show that FDI, institutional quality and capital account liberalization constitute important growth stimulating factors in the MENA region. Nevertheless, their influences are different in GCC and Non-GCC countries. While, the effect of FDI on growth is positive in the GCC countries and negative in Non- GCC countries, the impact of capital account liberalization and institutional quality in the Non-GCC countries are positive but less than in the GCC countries. Results reveal also, that in contrast to the GCC countries, capital account liberalization policy in the Non-GCC countries have reduced the benefits of FDI on growth. This finding is explained by the fact that most of the Non-GCC countries have engaged in the process of financial reforms and have poor quality of institutions. Finally, we demonstrate that institutional conditions matter for capital account liberalization and growth relationship in the MENA region.Keywords: FDI, capital account liberalization, economic growth, institutions, MENA region, panel data.

A maioria dos trabalhos sobre o impacto macroeconômico da abertura da conta de capital não encontra nenhum efeito da liberalização sobre as variáveis reais. No entanto, uma leitura cuidadosa desta literatura revela que a maioria destes estudos não trata realmente da teoria que se propõe a testar. Aqueles que defendem um impacto positivo da liberalização financeira sobre o crescimento econômico aceitam as previsões do modelo de crescimento neoclássico de redução permanente no custo do capital e aumento temporário no investimento nos mercados emergentes, quando estes liberalizam suas contas de capital. A maior parte dos artigos que não encontram efeitos da liberalização sobre as variáveis reais não testa estas previsões. Uma ramificação pequena, mas crescente, desta literatura sobre a relação entre liberalização da conta de capital e crescimento econômico, que leva em conta a natureza temporal das previsões do modelo neoclássico (os artigos que adotam o chamado enfoque do experimento de política), encontra evidências de que a abertura da conta de capital em um país emergente gera efeitos significativos sobre o investimento e crescimento econômico. A desagregação dos dados, ou seja, a aplicação do enfoque do experimento de política a dados de firmas, fornece uma ligação mais forte com a teoria e graus de liberdade suficientes para se adotar uma nova estratégia de identificação que permite testar a eficiência na alocação dos recursos dentro do país em desenvolvimento que abriu sua conta de capital. O objetivo desta dissertação é tratar das teorias e evidências do impacto da liberalização da conta de capital nos países emergentes sobre o crescimento de suas economias, analisando-se as metodologias empíricas existentes aplicadas no teste desta relação, enfatizando as teorias que dão suporte a seus testes empíricos, bem como suas principais descobertas. Os efeitos da abertura da conta de capital no Brasil, na década de 90, serão analisados, utilizando-se uma estratégia de identificação recente a partir de dados de firmas, para se checar a validade empírica das previsões do modelo de crescimento neoclássico nesta situação. / Most writings on the macroeconomic impact of capital account openness find no effects of liberalization on real variables. However, a critical reading of this literature reveals that most of these studies do not really address the theory they set out to test. Those who defend a positive impact of financial liberalization on economic growth accept the neoclassical growth model’s predictions of permanent reduction on the cost of capital and temporary increase in investment in emerging markets when they liberalize their capital account. The lion’s share of papers that find no effect of liberalization on real variables do not test these predictions. A small but growing branch of this literature on the relationship between capital account liberalization and economic growth that takes the time series nature of the neoclassical model’s predictions seriously (papers that adopt the policy-experiment approach) find that opening the capital account within an emerging country generates significant effects on investment and economic growth. Disaggregating the data, that is to say, applying the policy-experiment approach to firm-level data, provides a tighter link to the theory than aggregate data and enough degrees of freedom to adopt a new identification strategy that allows of the test on the efficiency of capital allocation within the developing country that opened its capital account. The objective of this dissertation is to address the theories and evidences of the impact of capital account liberalization in emerging countries on their economic growth, analyzing the existing empirical methodologies applied to test this relationship, emphasizing the theories that support their empirical tests as well as their main findings. The effects of capital account opening in Brazil, in the 90’s, will be analyzed, using the recent firm-level data identification strategy, to check the empirical validity of the neoclassical growth model’s predictions in this situation.