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A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting of a Small Open Economy

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Author Info
Keisuke Otsu (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: keisuke.ootsu@boj.or.jp))

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Abstract

This paper applies the business cycle accounting method a la Chari, Kehoe and McGrattan (2007) to a standard neoclassical small open economy model and assesses the recent crises in Hong Kong, Korea, Singapore and Thailand. The key common features of these crises are the sudden output collapses and consumption drops as large as the output drops. Quantitative results show that the sudden drops in total factor productivity are important in explaining the output drops. Distortions in the foreign debt market are important in Korea and Thailand whereas distortions in the domestic capital market are important in Hong Kong and Singapore in explaining the large consumption drops.

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Publisher Info
Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 07-E-16.

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Date of creation: Aug 2007
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Handle: RePEc:ime:imedps:07-e-16

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Related research
Keywords: Business Cycle Accounting; Small Open Economy; Asian Crisis;

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Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. Keisuke Otsu, 2008. "A Neoclassical Analysis of The Korean Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 449-471, April. [Downloadable!] (restricted)
  2. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September. [Downloadable!] (restricted)
  3. Mark Gertler & Simon Gilchrist & Fabio Natalucci, 2003. "External Constraints on Monetary Policy and the Financial Accelerator," NBER Working Papers 10128, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, vol. 6(4), pages 459-472, November. [Downloadable!] (restricted)
  5. Correia, Isabel & Neves, Joao C. & Rebelo, Sergio, 1995. "Business cycles in a small open economy," European Economic Review, Elsevier, vol. 39(6), pages 1089-1113, June. [Downloadable!] (restricted)
    Other versions:
  6. Felipe Meza & Erwan Quintin, 2005. "Financial crises and total factor productivity," Center for Latin America Working Papers 0105, Federal Reserve Bank of Dallas. [Downloadable!]
  7. Lee E. Ohanian, 2001. "Why did productivity fall so much during the Great Depression?," Staff Report 285, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  8. Chang, Roberto & Velasco, Andres, 2000. "Banks, debt maturity and financial crises," Journal of International Economics, Elsevier, vol. 51(1), pages 169-194, June. [Downloadable!] (restricted)
  9. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05. [Downloadable!] (restricted)
    Other versions:
  10. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 82(2), pages 346-53, May.
    Other versions:
  11. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December. [Downloadable!] (restricted)
  12. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June. [Downloadable!] (restricted)
  13. Cook, David & Devereux, Michael B., 2006. "Accounting for the East Asian Crisis: A Quantitative Model of Capital Outflows in Small Open Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 721-749, April. [Downloadable!] (restricted)
  14. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October. [Downloadable!] (restricted)
    Other versions:
  15. Correia, I. & Rabelo, S. & Naves, J.C., 1994. "Business Cycles in a Small Open Economy," RCER Working Papers 382, University of Rochester - Center for Economic Research (RCER).
    Other versions:
  16. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April. [Downloadable!] (restricted)
    Other versions:
  17. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24. [Downloadable!]
  18. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2005. "Sudden stops and output drops," Staff Report 353, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  19. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October. [Downloadable!] (restricted)
    Other versions:
  20. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March. [Downloadable!] (restricted)
    Other versions:
  21. Harold L. Cole & Lee E. Ohanian, 2002. "The Great U.K. Depression: A Puzzle and Possible Resolution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 19-44, January. [Downloadable!] (restricted)
    Other versions:
  22. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two flaws in business cycle accounting," Working Paper Series WP-06-10, Federal Reserve Bank of Chicago. [Downloadable!]
  23. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2000. "Understanding the Korean and Thai currency crises," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 45-60. [Downloadable!]
  24. Lawrence J. Christiano & Joshua M. Davis, 2006. "Two Flaws In Business Cycle Accounting," NBER Working Papers 12647, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-10.

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