Traditional view or revisionist view? The effects of monetary policy on exchange rates in Asia
AbstractThis article investigates the channels through which the short-term interest rate is used as an instrument to stabilize the exchange rates in Asia during the financial crisis in the 1990s. A time-varying-parameter model with Generalized Autoregressive Conditional Heteroscedasticity (GARCH) disturbances is employed to estimate the dynamic effect of the interest rate on the exchange rate. We distinguish the direct effect from the indirect effect. The direct effect exists so that a contractionary monetary policy can have an appreciation impact (the traditional view). The indirect effect refers to the higher default risk induced by a monetary policy tightening, which on the contrary generates a depreciation pressure (the revisionist view). Using weekly data from Indonesia, South Korea and Thailand from 1997:07 to 1998:12, we find that there is no significant evidence in favour of the traditional view. The revisionist view is clearly in effect in Thailand at the very beginning of the crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Financial Economics.
Volume (Year): 20 (2010)
Issue (Month): 9 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAFE20
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.