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Monetary policy in the aftermath of currency crisis: the case of Asia

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  • Ilan Goldfajn

    ()
    (Department of Economics PUC-Rio)

  • Taimur Baig

    ()

Abstract

This paper evaluates monetary policy and its relationship with the exchange rate in the five Asian crisis countries. The findings are compared to previous currency crises in recent history. The paper finds that there is no evidence of overly tight monetary policy in the Asian crisis countries in 1997 and early 1998. There is also no 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 suggested the need to reverse overly depreciated currencies through firmer monetary policy.

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File URL: http://www.econ.puc-rio.br/pdf/td399.pdf
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Bibliographic Info

Paper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 399.

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Length: 51 pages
Date of creation: Mar 1999
Date of revision:
Handle: RePEc:rio:texdis:399

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  1. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  2. Chinn, Menzie D., 2000. "Before the fall: were East Asian currencies overvalued?," Emerging Markets Review, Elsevier, vol. 1(2), pages 101-126, September.
  3. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  4. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1994. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," CEPR Discussion Papers 1060, C.E.P.R. Discussion Papers.
  5. Kalpana Kochhar & Prakash Loungani & Mark R. Stone, 1998. "The East Asian Crisis," IMF Working Papers 98/128, International Monetary Fund.
  6. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
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