Emerging markets in a globalized financial architecture: Exchange rate regime choice, dollarization and, the effect of sudden stop episodes on firm assets

This dissertation suggests that factors capturing today's financial architecture are very important determinants of exchange rate regime choice, implying that emerging markets tend to opt for fixed exchange rate regimes when financially dollarized but prefer a more flexible alternative when facing growing levels of external indebtness, volatile inflation, and fiscal pressures. The relationship between exchange rate flexibility and financial dollarization levels is explored in detail to demonstrate that movements to more flexible regimes cause a decrease in financial dollarization levels while higher financial dollarization levels induce economies to move towards relatively less flexible types of exchange rate arrangements. Furthermore, this dissertation analyzes the detrimental effect of sudden stop episodes at the firm level by identifying factors make a firm more likely to have to engage in the sale of its fixed assets when facing liquidity constraints. Firm level data from Thailand demonstrates that only two factors improve a firm's position during sudden stop episodes, (i) being of larger size and (ii) having a longer-term debt maturity structure.