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Monetary Policy in the Aftermath of Currency Crisis

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  • Taimur Baig
  • Ilan Goldfajn
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    Abstract

    This paper evaluates monetary policy and its relationship with the exchange rate in five Asian crisis countries. The findings are compared with previous currency crises in recent history. The paper finds no evidence of overly tight monetary policy in the Asian crisis countries in 1997 and early 1998, nor evidence that high interest rates led to weaker exchange rates. The usual trade-off between inflation and output when raising interest rates suggested the need for a softer monetary policy in the crisis countries to combat recession. However, in some countries, corporate balance sheet considerations called for the reversal of overly depreciated currencies through firmer monetary policy.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/170.

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    Length: 31
    Date of creation: 01 Dec 1998
    Date of revision:
    Handle: RePEc:imf:imfwpa:98/170

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    Cited by:
    1. Guglielmo Maria Caporale & Andrea Cipollini & Panicos Demetriades, 2000. "Monetary Policy and the Exchange Rate During the Asian Crisis Identification Through Heteroscedasticity," Discussion Papers in Economics 00/11, Department of Economics, University of Leicester, revised Feb 2002.
    2. 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.
    3. 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.
    4. Baak, SaangJoon, 2012. "Measuring misalignments in the Korean exchange rate," Japan and the World Economy, Elsevier, vol. 24(4), pages 227-234.
    5. Wai Ching Poon, 2010. "Testing Transmission Mechanisms on Economic Growth in Malaysia," Development Research Unit Working Paper Series 26-10, Monash University, Department of Economics.

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