Browse > Article
http://dx.doi.org/10.13106/jafeb.2022.vol9.no2.0029

Impact of CO2 Emissions, Exchange Rate Regimes, and Political Stability on Currency Crises: Evidence from South Asian Countries  

ULLLAH, Zia (School of Finance, Central University of Finance and Economics)
FEN, Tan Xiao (School of Finance, Central University of Finance and Economics)
TUNIO, Fayaz Hussain (Department of Law and Economics, Shaheed Zulfiqar Ali Bhutto University of Law)
ULLAH, Imran (School of Finance, Central University of Finance and Economics)
Publication Information
The Journal of Asian Finance, Economics and Business / v.9, no.2, 2022 , pp. 29-36 More about this Journal
Abstract
This study uses the panel probit model to investigate and evaluate the relationship between exchange rate regimes, political stability, and carbon dioxide during currency crises. To understand currency crisis times, we study a panel dataset of seven South Asian nations that contain annual observations from 1996 to 2020. Furthermore, we created the EMPI exchange market pressure indicator to detect crises. Our results strongly suggested that fixed exchange rate is negatively associated with currency crises, with good regulatory quality and better effective governments. Simultaneously, the floating exchange rate is positively related to the currency crises in those countries where the rule of law has less adequately flowed. However, CO2, exports, and interest rates are buoyantly associated with crises. The floating exchange rate, the rule of law, exports, and interest rate are associated positively and contribute more prone to the crisis episodes. Negatively associated variables contributed less amid crises episodes: fixed exchange rate regime, government effectiveness, and regulatory quality. Meanwhile, CO2 has a positive relationship with a currency crisis and contributes more likelihood to the probability of a currency crisis. Countries that adopted the fixed exchange rates with effective governments and regulatory quality faced more minor currency crises.
Keywords
Currency Crises; Exchange Rate; Political Stability; Carbon Dioxide; Probit Model;
Citations & Related Records
Times Cited By KSCI : 5  (Citation Analysis)
연도 인용수 순위
1 Levy-Yeyati, E., & Sturzenegger, F. (2016). Classifying exchange rate regimes: 15 years later (HKS Working Papers No. 16-028). Cambridge, MA: Harvard University, Centre of International Development. https://doi.org/10.17226/1635
2 Mishkin, F. S. (2004). Can Inflation Targeting Work in Emerging Market Countries? Money, Crises, and Transition, 71-94. https://doi.org/10.7551/mitpress/9780262182669.003.0005   DOI
3 Mussa, M. (1986). Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications. Carnegie- Rochester Conference Series on Public Policy, 25(C), 117-214. https://doi.org/10.1016/0167-2231(86)90039-4   DOI
4 Persson, T. (2001). Currency unions and trade: How large is the treatment effect? Economic Policy, 33, 433-462. https://doi.org/10.1111/1468-0327.00081   DOI
5 Yamakawa, A., & Peters, G. P. (2011). Structural decomposition analysis of greenhouse gas emissions in Norway 1990-2002. Economic Systems Research, 23(3), 303-318. https://doi.org/10.1080/09535314.2010.549461   DOI
6 Shambaugh, L. (2004). The effect of fixed exchange rates on monetary policy. The Quarterly Journal of Economics, 4(2), 301-352. https://doi.org/10.11114/aef.v4i2.2053   DOI
7 Klein, J. K., & Marion, L. D. (1997). Explaining the duration of exchange-rate pegs. Journal of Development Economics, 54(2), 387-404. https://doi.org/10.1016/S0304-3878(97)00048-5   DOI
8 Lin, M., & Ye, N.C. X. (2007). Does inflation targeting make a difference? Economic Synopses, 4(8), 9. https://doi.org/10.20955/es.2004.8   DOI
9 Saka, T. (2010). De facto exchange rate regimes and currency crises: Are pegged regimes with capital account liberalization more prone to speculative attacks? Journal of Banking and Finance, 34(6), 1109-1128. https://doi.org/10.1016/j.jbankfin.2009.11.007   DOI
10 Purwono, R., Mucha, K., & Mubin, M. K. (2018). The dynamics of Indonesia's current account deficit: Analysis of the impact of exchange rate volatility. Journal of Asian Finance, Economics and Business, 5(2), 25-33. https://doi.org/10.13106/jafeb.2018. vol5.no2.25   DOI
11 Wang, H., Ang, B. W., & Su, B. (2017). Assessing drivers of economy-wide energy use and emissions: IDA versus SDA. Energy Policy, 107(5), 585-599. https://doi.org/10.1016/j.enpol.2017.05.034   DOI
12 Bacchetta, P., & Van Wincoop, E. (2000). Does exchange-rate stability increase trade and welfare? American Economic Review, 90(5), 1093-1109. https://doi.org/10.1257/aer.90.5.1093   DOI
13 Bernhard, W., & Leblang, D. (2002). Political parties and monetary commitments. International Organization, 56(4), 803-830. https://doi.org/10.1162/002081802760403784   DOI
14 Bubula, M., & Robe, S. (2003). Are pegged and intermediate regimes more crisis-prone? IMF Working Papers, 03(223), 1. https://doi.org/10.5089/9781451875317.001   DOI
15 Baiocchi, G., Minx, J., & Hubacek, K. (2010). The impact of social factors and consumer behavior on carbon dioxide emissions in the United Kingdom. Journal of Industrial Ecology, 14(1), 50-72. https://doi.org/10.1111/j.1530-9290.2009.00216.x   DOI
16 Eichengreen, B., Rose, A. K., Wyplosz, C., Dumas, B., & Weber, A. (1995). Exchange market mayhem: The antecedents and aftermath of speculative attacks. Economic Policy, 10(21), 249. https://doi.org/10.2307/1344591   DOI
17 Hoekstra, R., Michel, B., & Suh, S. (2016). The emission cost of international sourcing: using structural decomposition analysis to calculate the contribution of international sourcing to CO2-emission growth. Economic Systems Research, 28(2), 151-167. https://doi.org/10.1080/09535314.2016.1166099   DOI
18 Hsing, Y. (2017). Impacts of the real effective exchange rate and the government deficit on aggregate output in Australia. Journal of Asian Finance, Economics and Business 4(1), 19-23. https://doi.org/10.13106/jafeb.2017.vol4.no1.19   DOI
19 Kenen, P. B., & Rodrik, D. (1986). Measuring and Analyzing the Effects of Short-Term Volatility in Real Exchange Rates. The Review of Economics and Statistics, 68(2), 311. https://doi.org/10.2307/1925511   DOI
20 Malik, A., & Lan, J. (2016). The role of outsourcing in driving global carbon emissions. Economic Systems Research, 28(2), 168-182. https://doi.org/10.1080/09535314.2016.1172475   DOI
21 Bussire, R., & Mulder, B. A. (2000). Political instability and economic vulnerability. International Journal of Finance and Economics, 5(4), 309-330. https://doi.org/10.1002/1099-1158(200010)5:4<309::AID-IJFE136>3.0.CO;2-I   DOI
22 Chiu, E. M. P., & Willett, T. D. (2020). Capital controls and currency crises revisited: A political economy analysis. Emerging Markets Finance and Trade, 56(12), 2908-2928. https://doi.org/10.1080/1540496X.2019.1617130   DOI
23 Comelli, F. (2014). Comparing parametric and non-parametric early warning systems for currency crises in emerging market economies. Review of International Economics, 22(4), 700-721. https://doi.org/10.1111/roie.12121   DOI
24 Feng, K., Davis, S. J., Sun, L., & Hubacek, K. (2015). Drivers of the US CO2 emissions 1997-2013. Nature Communications, 6, 1-8. https://doi.org/10.1038/ncomms8714   DOI
25 Haile, F. D., & Pozo, S. (2006). Exchange rate regimes and currency crises: An evaluation using extreme value theory. Review of International Economics, 14(4), 554-570. https://doi.org/10.1111/j.1467-9396.2006.00643.x   DOI
26 Friedlingstein, P., Andrew, R. M., Rogelj, J., Peters, G. P., Canadell, J. G., Knutti, R., Luderer, G., Raupach, M. R., Schaeffer, M., Van Vuuren, D. P., & Le Quere, C. (2014). Persistent growth of CO2 emissions and implications for reaching climate targets. Nature Geoscience, 7(10), 709-715. https://doi.org/10.1038/NGEO2248   DOI
27 Rozenberg, J., Davis, S. J., Narloch, U., & Hallegatte, S. (2015). Climate constraints on the carbon intensity of economic growth. Environmental Research Letters, 10(9). https://doi.org/10.1088/1748-9326/10/9/095006   DOI
28 Vu, T. V., & Huang, D. C. (2020). Economic Development, Globalization, Political Risk and CO2 Emission: The Case of Vietnam. Journal of Asian Finance, Economics and Business, 7(12), 21-31. https://doi.org/10.13106/jafeb.2020.vol7.no12.021   DOI
29 Arto, I., & Dietzenbacher, E. (2014). Drivers of the growth in global greenhouse gas emissions. Environmental Science and Technology, 48(10), 5388-5394. https://doi.org/10.1021/es5005347   DOI
30 Fiaz, A., Khurshid, N., Satti, A., Malik, M. S., & Malik, W. S. (2021). Real Exchange Rate Misalignment in Pakistan: An Application of Regime Switching Model. The Journal of Asian Finance, Economics and Business, 8(12), 63-73. https://doi.org/10.13106/jafeb.2021.vol8.no12.0063   DOI
31 Kurtz, M. J., & Schrank, A. (2007). Growth and governance: Models, measures, and mechanisms. Journal of Politics, 69(2), 538-554. https://doi.org/10.1111/j.1468-2508.2007.00549.x   DOI
32 Reinhart, C. M., & Rogoff, K. S. (2004). The modern history of exchange rate arrangements: A reinterpretation. Quarterly Journal of Economics, 119(1), 1-48. https://doi.org/10.1162/003355304772839515   DOI
33 Ghosh, A. R., Ostry, J. D., & Qureshi, M. S. (2015). Exchange rate management and crisis susceptibility: A reassessment. IMF Economic Review, 63(1), 238-276. https://doi.org/10.1057/imfer.2014.29   DOI
34 Wiedmann, T. (2009). A review of recent multi-region input-output models used for consumption-based emission and resource accounting. Ecological Economics, 69(2), 211-222. https://doi.org/10.1016/j.ecolecon.2009.08.026   DOI
35 Glick, R., Guo, X., & Hutchison, M. (2006). Currency crises, capital-account liberalization, and selection bias. Review of Economics and Statistics, 88(4), 698-714. https://doi.org/10.1162/rest.88.4.698   DOI
36 Aristotelous, K. (2001). Exchange-rate volatility, exchange-rate regime, and trade volume: Evidence from the UK-US export function (1889-1999). Economics Letters, 72(1), 87-94. https://doi.org/10.1016/S0165-1765(01)00414-1   DOI
37 Zia, K. (2021). Does Exchange Rate Regime, Political Stability, And Capital Controls Influence The Currency Crisis. Journal of Contemporary Issues in Business, 27(5), 430-451. https://doi.org/10.47750/cibg.2021.27.05.028   DOI