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Economic Shocks and Exchange Rate as a Shock Absorber in Indonesia and Thailand

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  • Goo, Siwei
  • Siregar, Reza Y. Siregar

Abstract

This study investigates the requirement for the exchange rate to be a shock absorber in Indonesia and Thailand from 1986 to 2007. In general, we find that the economic shocks have predominantly been asymmetric relative to the US and the Japanese economies. Yet, the weights attached to the US dollar remain respectably high in the exchange rate management of the rupiah and the baht, in particular for the latter currency, during the post-1997 crisis. Hence, relinquishing the role of exchange rate as a shock absorber has been costly during both the pre-and the post-1997 crisis periods for these Southeast Asian countries. Furthermore, it is arguably more costly for Thailand during the post-1997, and for Indonesia during the pre-1997 crisis.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16875.

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Date of creation: 19 Aug 2009
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Handle: RePEc:pra:mprapa:16875

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Keywords: Economic Shocks; Shock Absorber; Exchange Rate; Structural Vector Autoregression; Indonesia; Thailand;

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  1. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August.
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Cited by:
  1. Nasha Ananchotikul & Nuwat Nookhwun & Paiboon Pongpaichet & Songklod Rastapana & Phurichai Rungcharoenkitkul, 2010. "The Future of Monetary Policy: Roles of Financial Stability and Exchange Rate," Working Papers, Economic Research Department, Bank of Thailand 2010-07, Economic Research Department, Bank of Thailand.

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