Document Type : Research Article

Author

• Zia U llah; Tan Xiao Fen; Fayaz Husain Tunio; Imran U llah

Abstract

This study used the probit models to examine the relationship between exchange rate regime,
political stability, and capital controls on currency crises. Dataset is based on 1996 to 2020 over
the currency crisis episodes in 23 high-income countries and 25 middle-income countries, and
the total observation annually is 1200. Recent empirical studies have mixed results and argue
that the relationship is expectedto depend on capital controls and political stability both with the
exchange rate. The analysis providesimpressive results for fixed exchange rate and capital
controls are negatively associated with crisis,significantly less stable governments. The results
strongly support that floating exchange rate and (open) economies are negatively associated with
crises and lower the risk of crisis, remarkably more stable political governments. (Open)
economies and floating exchange rates are positively associated with a currency crisis and more
prone to a currency crisis, exceptionally less stable political governments.

Keywords

• currency crisis
• exchange rate regime
• capital controls
• political stability