Thomas D. Willett (Horton Professor of Economics Claremont Graduate University and Claremont McKenna College Director, Claremont Institute for Economic Policy Studies The Claremont Colleges Claremont, CA 91711 USA) Ekniti Nitithanprapas (Senior Advisor to Executive Director World Bank) Isriya Nitithanprapas (Policy and Planning Analyst National Economic & Social Development Board Thailand) Sunil Rongala (Visiting Scholar Freeman Program in Asian Political Economy The Claremont Colleges Claremont, CA 91711 USA)
Abstract
This paper analyzes hypotheses and evidence for the causes of the Asian crises. It presents new evidence that, along with high rates of credit expansion and low ratios of international reserves to short-term debt, the combination of substantially appreciated currencies and large current account deficits played an important role in the crises' severity. Furthermore, the paper concludes that pre-crisis over-optimism rather than panic caused financial markets to behave imperfectly and that perverse financial liberalization and limited flexibility of exchange rates generated moral hazard problems of more importance than those generated by prospects of international bailouts. Copyright (c) 2005 Center for International Development and the Massachusetts Institute of Technology.
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