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The Asian Currency Crisis - A Fait Accompli?

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Author Info
Bacha, Obiyathulla I.

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Abstract

This paper analyzes the East Asian Currency Crisis to examine what factors led to the crisis and the differential impact across countries. Empirical data of 7 Asian countries over the period 1990 – 1996 is examined. The sample of seven countries is divided into two categories; crisis countries and affected countries. Comparison of several economic indicators is made between these two categories to determine what factors led to the severe consequences in the crisis countries as opposed to affected countries, all of which were subject to contagion. The crisis countries were found to have had aggressive growth policies that were fuelled by reflationary strategies; particularly rapid monetary growth and capital inflows. With higher relative inflation and repressed interest rates, exchange rate equilibrium as dictated by purchasing power and interest rate parities were out of line given pegged exchange rates. The currencies had become overvalued. The result being current account deficits that were financed by capital inflows, increasingly in the form of short term foreign currency denominated loans. The combined impact of all of this had been to increase the crisis countries’ vulnerability to a speculative attack and a resulting self-fulfilling crisis.

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File URL: http://mpra.ub.uni-muenchen.de/12756/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12756.

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Date of creation: Dec 1997
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Publication status: Published in Malaysian Journal of Economic Studies 1-2.34(1997): pp. 67-92
Handle: RePEc:pra:mprapa:12756

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Related research
Keywords: Asian Currency Crisis; differential impact on countries.;

Find related papers by JEL classification:
E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
N15 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Asia including Middle East

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Subir Lall, 1997. "Speculative Attacks, Forward Market Intervention and the Classic Bear Squeeze," IMF Working Papers 97/164, International Monetary Fund.
  2. Ilan Goldfajn & Rodrigo O. Valdés, 1997. "Are Currency Crises Predictable?," IMF Working Papers 97/159, International Monetary Fund.
  3. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November. [Downloadable!] (restricted)
    Other versions:
  4. McKinnon, Ronald I. & Pill, Huw, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," World Development, Elsevier, vol. 26(7), pages 1267-1282, July. [Downloadable!] (restricted)
  5. Ronald I. McKinnon & Huw Pill, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," Working Papers 98004, Stanford University, Department of Economics. [Downloadable!]
  6. Otker, Inci & Pazarbasioglu, Ceyla, 1997. "Speculative attacks and macroeconomic fundamentals: evidence from some European currencies," European Economic Review, Elsevier, vol. 41(3-5), pages 847-860, April. [Downloadable!] (restricted)
  7. Berthelemy, J C & Varoudakis, A, 1995. "Thresholds in Financial Development and Economic Growth," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 63(0), pages 70-84, Suppl..
  8. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mansor H. Ibrahim, 2006. "Stock prices and bank loan dynamics in a developing country: The case of Malaysia," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 71-89, May. [Downloadable!] (restricted)
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