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The Asian Crises Reexamined

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Author Info

  • 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)

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    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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    Bibliographic Info

    Article provided by MIT Press in its journal Asian Economic Papers.

    Volume (Year): 3 (2004)
    Issue (Month): 3 ()
    Pages: 32-87

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    Handle: RePEc:tpr:asiaec:v:3:y:2004:i:3:p:32-87

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    References

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    1. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
    2. Burnside, A Craig & Eichenbaum, Martin & Rebelo, Sérgio, 1998. "Prospective Deficits and the Asian Currency Crises," CEPR Discussion Papers 2015, C.E.P.R. Discussion Papers.
    3. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Early Warning System: Empirical Results from The Signals Approach," MPRA Paper 24577, University Library of Munich, Germany.
    4. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
    5. Aaron Tornell, 1999. "Common Fundamentals in the Tequila and Asian Crises," NBER Working Papers 7139, National Bureau of Economic Research, Inc.
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    7. Leonardo Bartolini & Allan Drazen, 1996. "Capital account liberalization as a signal," Staff Reports 11, Federal Reserve Bank of New York.
    8. Kawai, Masahiro & Newfarmer, Richard & Schmukler, Sergio, 2001. "Crisis and contagion in East Asia : nine lessons," Policy Research Working Paper Series 2610, The World Bank.
    9. Catherine A. Pattillo & Andrew Berg, 1998. "Are Currency Crises Predictable? A Test," IMF Working Papers 98/154, International Monetary Fund.
    10. Edison, Hali & Reinhart, Carmen M., 2001. "Stopping hot money," Journal of Development Economics, Elsevier, vol. 66(2), pages 533-553, December.
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    13. Guillermo A. Calvo & Enrique G. Mendoza, 1999. "Regional Contagion and the Globalization of Securities Markets," NBER Working Papers 7153, National Bureau of Economic Research, Inc.
    14. Salvatore, Dominick, 1999. "Could the Financial Crisis in East Asia Have Been Predicted?," Journal of Policy Modeling, Elsevier, vol. 21(3), pages 341-347, May.
    15. Willett, Thomas D. & Keil, Manfred W. & Ahn, Young Seok, 2002. "Capital mobility for developing countries may not be so high," Journal of Development Economics, Elsevier, vol. 68(2), pages 421-434, August.
    16. Christian B. Mulder & Matthieu Bussière, 1999. "External Vulnerability in Emerging Market Economies - How High Liquidity Can Offset Weak Fundamentals and the Effects of Contagion," IMF Working Papers 99/88, International Monetary Fund.
    17. Andrea Bubula & Inci Ötker, 2002. "The Evolution of Exchange Rate Regimes Since 1990: Evidence From De Facto Policies," IMF Working Papers 02/155, International Monetary Fund.
    18. Michael P. Dooley, 1998. "A model of crises in emerging markets," International Finance Discussion Papers 630, Board of Governors of the Federal Reserve System (U.S.).
    19. David Cook & Michael B. Devereux, 2002. "Capital Controls in Malaysia: Effectiveness and Side Effects," Asian Economic Papers, MIT Press, vol. 1(1), pages 49-82.
    20. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-48, September.
    21. Kearney, Colm, 1999. "The Asian Financial Crisis," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 1999(1-Februar), pages 29-55.
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    Cited by:
    1. Jie Li, 2007. "Examining the interactions of high reserves and weak fundamentals in currency crises," Applied Economics Letters, Taylor & Francis Journals, vol. 14(8), pages 617-621.
    2. Mohammad Karimi & Marcel-Cristian Voia, 2011. "Identifying Extreme Values of Exchange Market Pressure," Carleton Economic Papers 11-10, Carleton University, Department of Economics.

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