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

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Author Info
Goo, Siwei
Siregar, Reza Y. Siregar

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

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange

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  1. Devereux, Michael B., 2004. "Should the exchange rate be a shock absorber?," Journal of International Economics, Elsevier, vol. 62(2), pages 359-377, March. [Downloadable!] (restricted)
  2. Clarida, Richard & Gali, Jordi, 1994. "Sources of real exchange-rate fluctuations: How important are nominal shocks?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 1-56, December. [Downloadable!] (restricted)
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  3. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August. [Downloadable!] (restricted)
    Other versions:
  4. Bankim Chadha & Eswar Prasad, 1996. "Real Exchange Rate Fluctuations and the Business Cycle: Evidence from Japan," IMF Working Papers 96/132, International Monetary Fund.
  5. 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. [Downloadable!] (restricted)
  6. Charles WYPLOSZ, 2001. "How Risky Is Financial Liberalization In The Developing Countries?," G-24 Discussion Papers 14, United Nations Conference on Trade and Development. [Downloadable!]
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  7. Rahmatsyah, Teuku & Rajaguru, Gulasekaran & Siregar, Reza Y., 2002. "Exchange-rate volatility, trade and "fixing for life" in Thailand," Japan and the World Economy, Elsevier, vol. 14(4), pages 445-470, December. [Downloadable!] (restricted)
  8. Ilan GOLDFAJN & Gino OLIVARES, 2001. "Can Flexible Exchange Rates Still “Work” In Financially Open Economies?," G-24 Discussion Papers 8, United Nations Conference on Trade and Development. [Downloadable!]
  9. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  10. Bowman, Chakriya, 2005. "Yen bloc or koala bloc? Currency relationships after the East Asian crisis," Japan and the World Economy, Elsevier, vol. 17(1), pages 83-96, January. [Downloadable!] (restricted)
  11. Roberto Chang & Andres Velasco, 2000. "Exchange-Rate Policy for Developing Countries," American Economic Review, American Economic Association, vol. 90(2), pages 71-75, May. [Downloadable!] (restricted)
  12. Taimur Baig, 2001. "Characterizing Exchange Rate Regimes in Post-Crisis East Asia," IMF Working Papers 01/152, International Monetary Fund. [Downloadable!]
  13. Christopher J. Jarvis & Mark R. Stone & Alessandro Zanello & Andrew Berg, 2003. "Re-Establishing Credible Nominal Anchors After a Financial Crisis: A Review of Recent Experience," IMF Working Papers 03/76, International Monetary Fund. [Downloadable!]
  14. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers 870, Cowles Foundation, Yale University. [Downloadable!]
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  15. McKinnon, Ronald I., 2004. "The East Asian dollar standard," China Economic Review, Elsevier, vol. 15(3), pages 325-330. [Downloadable!] (restricted)
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