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Did a boom in money and credit precede east Asia's recent currency crisis?

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  • Ramon Moreno

Abstract

This paper assesses the relationship between money and credit and episodes of sharp depreciation in East Asia by: (i) examining the growth rates of money and credit variables around depreciation episodes; (ii) estimating the impact of money and credit variables on the probability of a sharp depreciation episode using logit models; (iii) evaluating the signals contained in money and credit variables prior to episodes of sharp currency depreciation. ; Reserve money grew rapidly prior to the 1997 currency crisis in East Asia. However, signs of a money or credit boom based on other indicators were mixed. The 1997 episodes differ from East Asia's past experience in a number of ways. Rapid growth in the M2 multiplier and in the ratio of M2 to foreign reserves, positive deviations of reserve money from trend, and declines or sluggish growth in reserve money and in foreign reserves, helped predict episodes of sharp depreciation up to mid-1996. While some of these indicators pointed to the possibility of a crisis in some of the countries prior to the 1997 episodes, they did not consistently predict the sharp depreciations that occurred.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1999)
Issue (Month): ()
Pages: 23-41

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Handle: RePEc:fip:fedfer:y:1999:p:23-41:n:1

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Keywords: East Asia ; Money;

References

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  1. Michael Gavin & Ricardo Hausmann, 1996. "The Roots of Banking Crises: The Macroeconomic Context," Research Department Publications 4026, Inter-American Development Bank, Research Department.
  2. Frankel, Jeffrey A & Rose, Andrew K, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," CEPR Discussion Papers 1349, C.E.P.R. Discussion Papers.
  3. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  4. Ramon Moreno, 1995. "Macroeconomic behavior during periods of speculative pressure or realignment: evidence from Pacific Basin economies," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.
  5. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.).
  6. Reuven Glick & Ramon Moreno, 1999. "Money and credit, competitiveness, and currency crises in Asia and Latin America," Pacific Basin Working Paper Series 99-01, Federal Reserve Bank of San Francisco.
  7. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  8. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  9. repec:fth:inadeb:318 is not listed on IDEAS
  10. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
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