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High Interest Rates and Exchange Rate Stabilization in Korea, Malaysia, and Thailand: An Empirical Investigation of the Traditional and Revisionist Views

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  • Dekle, Robert
  • Hsiao, Cheng
  • Wang, Siyan

Abstract

The paper seeks to determine whether high interest rates have had the effect of appreciating nominal exchange rates in three Asian countries. The authors use high-frequency data for Korea, Malaysia, and Thailand during the recent crisis and its aftermath to examine the relationship between the increase in interest rates and the behavior of exchange rates. It is found that raising interest rates has had a small impact on nominal exchange rates during the crisis period. Copyright 2002 by Blackwell Publishing Ltd.

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  • Dekle, Robert & Hsiao, Cheng & Wang, Siyan, 2002. "High Interest Rates and Exchange Rate Stabilization in Korea, Malaysia, and Thailand: An Empirical Investigation of the Traditional and Revisionist Views," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 64-78, February.
  • Handle: RePEc:bla:reviec:v:10:y:2002:i:1:p:64-78
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    References listed on IDEAS

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    1. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-3.
    2. 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.
    3. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    4. Kalpana Kochhar & Prakash Loungani & Mark R. Stone, 1998. "The East Asian Crisis; Macroeconomic Developments and Policy Lessons," IMF Working Papers 98/128, International Monetary Fund.
    5. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, pages 1-13.
    6. Chinn, Menzie D., 2000. "Before the fall: were East Asian currencies overvalued?," Emerging Markets Review, Elsevier, vol. 1(2), pages 101-126, September.
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    Citations

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    Cited by:

    1. Sylvester C. W. Eijffinger & Benedikt Goderis, 2008. "The Effect of Monetary Policy on Exchange Rates during Currency Crises: the Role of Debt, Institutions, and Financial Openness," Review of International Economics, Wiley Blackwell, pages 559-575.
    2. repec:ebl:ecbull:v:5:y:2007:i:6:p:1-14 is not listed on IDEAS
    3. Ramkishen S. Rajan, 2007. "Managing new-style currency crises: the swan diagram approach revisited," Journal of International Development, John Wiley & Sons, Ltd., pages 583-606.
    4. Choi, In & Park, Daekeun, 2008. "Causal relation between interest and exchange rates in the Asian currency crisis," Japan and the World Economy, Elsevier, pages 435-452.
    5. Enrico Tanuwidjaja & Choy Keen Meng, 2005. "Central Bank Credibility and Monetary Policy: Evidence from Small Scale Macroeconomic Model of Indonesia," SCAPE Policy Research Working Paper Series 0514, National University of Singapore, Department of Economics, SCAPE.
    6. Evan C Tanner, 2002. "Exchange Market Pressure, Currency Crises, and Monetary Policy; Additional Evidence From Emerging Markets," IMF Working Papers 02/14, International Monetary Fund.
    7. Hsing, Yu, 2009. "Analysis of the Behavior of the New Zealand Dollar Exchange Rate: Comparison of Four Major Models," Review of Applied Economics, Review of Applied Economics, vol. 5(1-2).
    8. Soyoung Kim, 2014. "Effects of Monetary Policy Shocks on the Exchange Rate in the Republic of Korea: Capital Flows in Stock and Bond Markets," Asian Development Review, MIT Press, vol. 31(1), pages 121-135, March.
    9. Inci Gumus, 2002. "Effects of the Interest Rate Defense on Exchange Rates During the 1994 Crisis in Turkey," Working Papers 0214, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    10. Yu Hsing, 2015. "Short-Run Determinants of the USD/MYR Exchange Rate," Economics Bulletin, AccessEcon, vol. 35(1), pages 97-105.
    11. Robert F. Martin, 2006. "The Baby Boom: Predictability in House Prices and Interest Rates," 2006 Meeting Papers 84, Society for Economic Dynamics.
    12. Chen, Shiu-Sheng, 2006. "Revisiting the interest rate-exchange rate nexus: a Markov-switching approach," Journal of Development Economics, Elsevier, pages 208-224.
    13. Yu HSING, 2016. "Determinants of the Hungarian forint/ US dollar exchange rate," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, pages 163-170.
    14. Hsing, Yu, 2016. "Comparison of the Fundamental and Monetary Models of the Determinants of the Argentine Peso/US Dollar Exchange Rate," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, pages 379-388.
    15. Vincent Bouvatier, 2007. "Are International Interest Rate Differentials Driven by the Risk Premium? The Case of Asian Countries," Economics Bulletin, AccessEcon, vol. 5(6), pages 1-14.
    16. Ramkishen S. Rajan, 2006. "Managing New-Style Currency Crises: The Swan Diagram Approach Revisited," SCAPE Policy Research Working Paper Series 0517, National University of Singapore, Department of Economics, SCAPE.

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