IDEAS home Printed from https://ideas.repec.org/a/eee/asieco/v34y2014icp66-78.html
   My bibliography  Save this article

Financial crises, Asian stock indices, and current accounts: An Asian-U.S. comparative study

Author

Listed:
  • Chen, David Y.
  • Li, Tongzhe

Abstract

This paper investigates the effects of financial crises-based exchange rate, real interest rate, and personal consumption expenditure on stock market indices and balances of current account in four Asian countries/areas, and the U.S. from 1997 to 2010. Results obtained from Sims's first-order DSGE representation suggest that two policy variables – changes in the exchange rate and changes in the real interest rate lagged by one quarter – act as stabilizers for contemporaneous changes in stock indices for Thailand, Malaysia, and the U.S., but as destabilizers for Taiwan and Hong Kong. However, changes in personal consumption expenditure lagged by one quarter only play a destabilizing role in Hong Kong. For contemporaneous changes in the current account balance, all three policy variables become destabilizers for all five countries except the one-quarter lagged change in real interest rate, which acts as a stabilizer in Malaysia.

Suggested Citation

  • Chen, David Y. & Li, Tongzhe, 2014. "Financial crises, Asian stock indices, and current accounts: An Asian-U.S. comparative study," Journal of Asian Economics, Elsevier, vol. 34(C), pages 66-78.
    • Handle: RePEc:eee:asieco:v:34:y:2014:i:c:p:66-78
    DOI: 10.1016/j.asieco.2014.06.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1049007814000402
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.asieco.2014.06.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Maurice Obstfeld, 2012. "Does the Current Account Still Matter?," American Economic Review, American Economic Association, vol. 102(3), pages 1-23, May.
    2. Taimur Baig & Ilan Goldfajn, 1999. "Financial Market Contagion in the Asian Crisis," IMF Staff Papers, Palgrave Macmillan, vol. 46(2), pages 1-3.
    3. James J. Kung & Wing‐Keung Wong, 2009. "Efficiency Of The Taiwan Stock Market," The Japanese Economic Review, Japanese Economic Association, vol. 60(3), pages 389-394, September.
    4. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    5. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
    6. Jiranyakul, Komain, 2009. "Economic Forces and the Thai Stock Market, 1993-2007," MPRA Paper 45582, University Library of Munich, Germany.
    7. Ahmad Zubaidi Baharumshah & Hamizun Bin Ismail, 2012. "The present value model and Thailand's current account balance," Journal of Economic Studies, Emerald Group Publishing, vol. 39(3), pages 337-355, December.
    8. Mishkin, Frederic S., 1999. "Lessons from the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 709-723, August.
    9. Barro, Robert J. & Ursúa, José F., 2017. "Stock-market crashes and depressions," Research in Economics, Elsevier, vol. 71(3), pages 384-398.
    10. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1469-1513.
    11. Dwyer, Gerald P. & Tkac, Paula, 2009. "The financial crisis of 2008 in fixed-income markets," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1293-1316, December.
    12. George Soros, 1999. "The International Financial Crisis," Challenge, Taylor & Francis Journals, vol. 42(2), pages 58-76, March.
    13. Ramón Moreno, 2008. "Experiences with Current Account Deficits in Southeast Asia," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.),Current Account and External Financing, edition 1, volume 12, chapter 14, pages 537-582, Central Bank of Chile.
    14. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299.
    15. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156, National Bureau of Economic Research, Inc.
    16. Hasan, Zubair, 2002. "The 1997-98 Financial Crisis In Malaysia: Causes, Response, And Results," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 9, pages 1-16.
    17. Martin Lettau & Sydney C. Ludvigson & Charles Steindel, 2002. "Monetary policy transmission through the consumption-wealth channel," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 117-133.
    18. Reuven Glick & Mark M. Spiegel, 2010. "Asia and the global financial crisis: conference summary," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar15.
    19. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    20. Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
    21. Michael Dotsey, 2013. "DSGE models and their use in monetary policy," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 10-16.
    22. Click, Reid W. & Plummer, Michael G., 2005. "Stock market integration in ASEAN after the Asian financial crisis," Journal of Asian Economics, Elsevier, vol. 16(1), pages 5-28, February.
    23. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, March.
    24. Lonnie Stevans, 2004. "Aggregate consumption spending, the stock market and asymmetric error correction," Quantitative Finance, Taylor & Francis Journals, vol. 4(2), pages 191-198.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. ARIÇ Kıvanç Halil & SEK Siok Kun & de SOUSA Miguel Rocha, 2021. "Current Account Balance In Emerging Asia," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 16(1), pages 12-25, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard Dennis, 2003. "Exploring the Role of the Real Exchange Rate in Australian Monetary Policy," The Economic Record, The Economic Society of Australia, vol. 79(244), pages 20-38, March.
    2. David Meenagh & Patrick Minford, 2012. "Non Stationary Shocks, Crises and Policy," Rivista italiana degli economisti, Società editrice il Mulino, issue 2, pages 191-224.
    3. Jane Sneddon Little & Giovanni P. Olivei, 1999. "Why the interest in reforming the International Monetary System?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 53-84.
    4. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti, 2010. "Can a real business cycle model without price and wage stickiness explain UK real exchange rate behaviour?," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1131-1150, October.
    5. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    6. Thorvardur Tjörvi Ólafsson, 2006. "The New Keynesian Phillips Curve: In Search of Improvements and Adaptation to the Open Economy," Economics wp31_tjorvi, Department of Economics, Central bank of Iceland.
    7. Willi Semmler, 2011. "Asset Prices, Booms and Recessions," Springer Books, Springer, number 978-3-642-20680-1, November.
    8. Batini, Nicoletta & Harrison, Richard & Millard, Stephen P., 2003. "Monetary policy rules for an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2059-2094, September.
    9. Kollmann, Robert, 2002. "Monetary Policy Rules in a Two-Country World," MPRA Paper 70347, University Library of Munich, Germany.
    10. Corsetti, Giancarlo & Pesenti, Paolo, 2005. "International dimensions of optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 281-305, March.
    11. Ante Babić & Ante Žigman, 2001. "Currency Crises: Theoretical and Empirical Overview of the 1990s," Surveys 5, The Croatian National Bank, Croatia.
    12. Giannone, Domenico & Reichlin, Lucrezia & Sala, Luca, 2006. "VARs, common factors and the empirical validation of equilibrium business cycle models," Journal of Econometrics, Elsevier, vol. 132(1), pages 257-279, May.
    13. Winkler, Adalbert, 2001. "On the need for an international lender of last resort: Lessons from domestic financial markets," W.E.P. - Würzburg Economic Papers 28, University of Würzburg, Department of Economics.
    14. Carlos Borondo, "undated". "International Transmission of Monetary Shocks with Interest Rate Rule," Working Papers on International Economics and Finance 00-04, FEDEA.
    15. Benigno, Pierpaolo & Benigno, Gianluca, 2001. "Monetary Policy Rules and the Exchange Rate," CEPR Discussion Papers 2807, C.E.P.R. Discussion Papers.
    16. Greg Hannsgen, 2006. "The Disutility of International Debt: Analytical Results and Methodological Implications," Palgrave Macmillan Books, in: Philip Arestis & Jesus Ferreiro & Felipe Serrano (ed.), Financial Developments in National and International Markets, chapter 1, pages 1-24, Palgrave Macmillan.
    17. Özer Karagedikli & Troy Matheson & Christie Smith & Shaun P. Vahey, 2010. "RBCs AND DSGEs: THE COMPUTATIONAL APPROACH TO BUSINESS CYCLE THEORY AND EVIDENCE," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 113-136, February.
    18. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.
    19. Kollmann, Robert, 2002. "Monetary policy rules in the open economy: effects on welfare and business cycles," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 989-1015, July.
    20. Nelson, Edward, 2008. "Ireland and Switzerland: The jagged edges of the Great Inflation," European Economic Review, Elsevier, vol. 52(4), pages 700-732, May.

    More about this item

    Keywords

    Financial crises; Stock indices; Current account balances;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:34:y:2014:i:c:p:66-78. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/asieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.