B Felipe Larraín

Explaining Currency Crises

This paper examines the determinants of currency crises with a panel annual dataset for 30 countries between 1975 and 1996. We estimate a probit model with random effects and find that high rates of seignorage, current account imbalances, real exchange rate misalignment, low foreign exchange reserves, negative terms of trade shocks, poor growth performance, and a measure of regional contagion all have significant power to explain the presence of currency crises in our sample. In general, our results can be interpreted as supporting both first and second-generation models of currency crises. Various robustness tests confirm the validity of these results. We also find that currency crises have an important predictable component. Using our benchmark regression we are able to predict correctly a majority of the currency crises that occurred within our sample.

Does foreign direct investment decrease corruption

This paper assesses the effect of openness on corruption, using foreign direct investment (FDI) inflows as a measure of openness, after trade intensity is accounted for. We use a broad cross section of countries over the period 1970 to 1994 and address th

The External Debt Problem in Central America: Honduras, Nicaragua, and the HIPC Initiative

This paper reviews the foreign debt burden in Central America with special emphasis on Honduras and Nicaragua, which have a large debt overhang. Several indicators suggest that this foreign debt seriously impedes economic growth in both nations. Honduras and Nicaragua, the poorest countries of Central America, have lagged behind the rest of the region in growth, resulting in an increase in regional income inequality during the 1990s. Analysis suggests that Honduras and Nicaragua require alleviation of their foreign debt as a prerequisite to sustained growth. This paper also evaluates the prospects of these countries to qualify for the new initiative aimed at reducing the debt burden of the highly indebted poor countries (the so-called HIPC Initiative). It concludes that Honduras and Nicaragua have favorable prospects of qualifying for the HIPC Initiative.

QUE SABEMOS REALMENTE SOBRE LAS CRISIS CAMBIARIAS

Resumen: Este trabajo revisa algunos de los aspectos centrales sobre las crisis cambiarias, y enfatiza tres resultados principales. Primero, la inestabilidad mundial, medida por el numero de crisis cambiarias en un grupo de paises seleccionado, ha mostrado una tendencia claramente decreciente en los ultimos anos. Segundo, con base en varios trabajos recientes, hemos adquirido ya una buena idea sobre los determinantes mas importantes de las crisis cambiarias. Por lo regular, estos eventos pueden explicarse satisfactoriamente con un numero relativamente pequeno de indicadores macroeconomicos. Tercero, las crisis cambiarias no son completamente impredecibles. De hecho, usando un modelo sencillo para el periodo 1996-2001, una evaluacion de las predicciones fuera de muestra presenta resultados muy favorables.