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The Interest Rate-Exchange Rate Nexus in the Asian Crisis Countries

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Author Info

  • Atish R. Ghosh
  • Gabriela Basurto

Abstract

Sharp exchange rate depreciations in the East Asian crisis countries (Indonesia, Korea, and Thailand) raised doubts about the efficacy of increasing interest rates to defend the currency. Using a standard monetary model of exchange rate determination, this paper shows that tighter monetary policy was in fact associated with an appreciation of the exchange rate. Moreover, there is little evidence of higher real interest rates contributing to a widening of the risk premium.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/19.

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Length: 25
Date of creation: 01 Jan 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/19

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Keywords: Asia; Exchange rates; Interest rates; exchange rate; monetary model; monetary policy; money demand; exchange rate movements; inflation; exchange rate depreciation; exchange rate determination; exchange rate depreciations; money supply; monetary stance; monetary fund; monetary aggregates; nominal exchange rates; nominal exchange rate; currency depreciation; real exchange rate; exchange rate appreciations; discount rate; exchange rate appreciation; standard monetary model; money supplies; exchange rate dynamics; fixed exchange rate regime; monetary growth; tight monetary stance; domestic money supply; exchange rate economics; depreciating exchange rates; exchange rate regime; monetary approach; tight monetary policy; monetary expansion; exchange rate developments; quasi money;

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Citations

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Cited by:
  1. Vincent Bouvatier, 2007. "Are International Interest Rate Differentials Driven by the Risk Premium? The Case of Asian Countries," Economics Bulletin, AccessEcon, vol. 5(6), pages 1-14.
  2. Mehta, Aashish & Sun, Wei, 2013. "Does Industry Affiliation Influence Wages? Evidence from Indonesia and the Asian Financial Crisis," World Development, Elsevier, vol. 51(C), pages 47-61.
  3. Ramkishen S. Rajan, 2005. "Managing New-Style Currency Crises : The Swan Diagram Approach Revisited," Macroeconomics Working Papers 22574, East Asian Bureau of Economic Research.
  4. Kohsaka, Akira, 2004. "A fundamental scope for regional financial cooperation in East Asia," Journal of Asian Economics, Elsevier, vol. 15(5), pages 911-937, October.
  5. repec:ebl:ecbull:v:5:y:2007:i:6:p:1-14 is not listed on IDEAS
  6. Alex Mourmouras & Stabley W. Black & Charalambos Christofides, 2001. "Convertibility Risk," IMF Working Papers 01/210, International Monetary Fund.
  7. Boorman, Jack & Lane, Timothy & Schulze-Ghattas, Marianne & Bulir, Ales & Ghosh, Atish R. & Hamann, Javier & Mourmouras, Alex & Phillips, Steven, 2000. "Managing financial crises: the experience in East Asia," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 1-67, December.
  8. Gochoco-Bautista, Maria Socorro & Bautista, Carlos C., 2005. "Monetary policy and exchange market pressure: The case of the Philippines," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 153-168, March.
  9. Lee, Ki Seong & Yoon, Seok, 2007. "Interrelationships and volatility of the financial asset prices under capital flows: The case of Korea," Economic Modelling, Elsevier, vol. 24(3), pages 386-397, May.
  10. Roberto Benelli, 2003. "Do IMF-Supported Programs Boost Private Capital Inflows? the Role of Program Size and Policy Adjustment," IMF Working Papers 03/231, International Monetary Fund.
  11. Stanley Black & Charis Christofides & Alex Mourmouras, 2006. "Convertibility risk: the precautionary demand for foreign currency in a crisis," Annals of Finance, Springer, vol. 2(2), pages 141-165, March.

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