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Monetary Policy and the Exchange Rate During the Asian Crisis Identification Through Heteroscedasticity Author info | Abstract | Publisher info | Download info | Related research | Statistics Guglielmo Maria Caporale
Andrea Cipollini
Panicos Demetriades ()
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This paper examines whether a monetary policy tightening (i.e., an increase in the domestic interest rate) was successful in defending the exchange rate from speculative pressures during the Asian financial crisis. We estimate a bivariate VECM for four Asian countries, and improve upon existing studies in two important ways. First, by using a long data span we are able to compare the effects of an interest rate rise on the nominal exchange rate during tranquil and turbulent periods. Second, we take into account the endogeneity of interest rates and identify the system by exploiting the heteroscedasticity properties of the relevant time series, as suggested by Sentana and Fiorentini (2001). We find that while tight monetary policy helped to defend the exchange rate during tranquil periods, it had the opposite effect during the Asian crisis.
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number
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Date of creation: Dec 2000Date of revision:
Feb 2002Handle: RePEc:lec:leecon:00/11Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK Phone: +44 (0)116 252 2887 Fax: +44 (0)116 252 2908 Email: Web page: http://www.le.ac.uk/economics/
Order Information: Email: Web: http://www.le.ac.uk/economics/research/dpseries.html
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Keywords: Monetary Policy ; Financial Crisis ; Identification ; Other versions of this item:
Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
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