Financial Globalization, Domestic Financial Reform and Twin Crisis

We study the interaction between capital account liberalization and the interest rate liberalization affects the probability of "twin crisis". This analysis uses of a 90 cross country dataset and panel logistic analysis to debate the adequate sequencing of financial reform. The results indicate that the better liberalization practice to lower probability of twin crisis is first to deregulate the interest rate controls in the semi-open status of capital account, and then to fully open the capital account with floating exchange rate regime. Even after liberalization of interest rate control of a long period of time, the full open of capital account control still face the risk of vulnerability to financial crisis.