Оценка взаимозависимости между финансовой либерализацией и двойными кризисами в развивающихся странах
Twin crises represent the simultaneous onset of the currency and banking crises. These crises have become the focus of academic research following the major financial turmoil in developing economies in the 1980s and 1990s. The episodes of twin crises have been observed in Mexico, Southeast Asia and Latin America. Financial liberalization is considered as one of the key factors that has increased the vulnerability of developing economies to currency and banking crises. The financial sector liberalization program in developing economies included the abandonment of interest rates capping, capital account liberalization, transition to a floating exchange rate regime, reduction in reserve requirements for credit institutions, and privatization of banks. On the one hand, these reforms have accelerated the economic growth, and on the other hand, they increased vulnerability of the financial sector to external shocks and crisis developments.
This paper examines the relationship between financial liberalization and episodes of double crises in developing economies. Previous studies have analyzed the effects of reforms based on aggregate indicators of financial liberalization. In our study, we attempted to assess the effect of financial liberalization on crises through the prism of different aspects of reforms within the framework of the financial liberalization policy of developing economies.
In order to identify the components of financial liberalization that affect the likelihood of twin crises, we used the model based on pooled panel logit regression. The dependent variable in the regression equation is a binary variable reflecting the onset of both a banking and currency crises. The independent variables list includes indices of interest rate and capital account liberalization, the prudential supervision index, the central bank independence index, the level of country’s international reserves and country’s external debt (as a % of GDP), as well as a dummy variable reflecting the exchange rate regime.
The final sample covers 32 developing economies in the period 1973–2005 which covers the most significant episodes of twin crises, as well as a period of intense liberalization of the financial sector of developing economies. Thus, this time interval is relevant to the objectives of our study.
The logit regression was tested to assess the quality of intra-sample forecast, the presence of multicollinearity and heteroscedasticity, as well as for potential sample heterogeneity. The tests have demonstrated the adequacy of the results that indicate that not all the financial liberalization reforms lead to crisis developments. The regression modeling revealed that the likelihood of a twin crisis increases statistically significantly with an increase in the index of the interest rates liberalization by one point, as well as with a floating exchange rate regime and with higher independence of the central bank. At the same time, the likelihood of a twin crisis is statistically significantly reduced when the prudential banking supervision index increases by one point, as well as when the capital account liberalization index increases by one point.
The results obtained are consistent with the previous findings in this area. First, liberalization of interest rates commonly leads to volatility at a macro-finance level and makes developing economies more vulnerable to external shocks. As a result, an external shock may provoke a sharp reduction in output due to significant increase in interest rates and also due to an increase in external debt service costs. Moreover, it can cause a devaluation of the national currency and banking system crisis at large. Second, a floating exchange rate regime can lead to a significant increase in debt burden as a result of depreciation of the national currency, which can subsequently cause disproportions in the banking sector. Third, more rigorous prudential banking supervision enables to maintain an adequate level of capital and liquidity in the banking sector that limits economic stress in the banking sector and facilitates mitigation of systemic risks. Fourth, capital account liberalization which is one of the principal factors of the financial market attractiveness, enables to increase the volume of foreign direct investment (FDI) to developing economies. The inflow of investment decreases the risks of depreciation of the national currency and promotes economic growth. At the same time, our findings contrasts with some previous researches where the authors posit that the effect of liberalization of the cross-border capital flow may contribute to an increase in speculative portfolio investment, which may result in exchange rate volatility during the period of exacerbation of external risks.
Our findings may be used by the central banks of developing economies in determining the optimal, balanced monetary policy applicable for the liberalization process in the financial sector. This approach will require removal of restrictions on cross-border capital flow followed by the shift to a market-based formation of interest rates and the exchange rate regime. At the same time, at each of the stages of financial liberalization, the authorized banking regulator will need to calibrate banking prudential supervision mechanism, bringing its standards in line with the needs of the financial liberalization policy and objectives.