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Post-crisis exchange rate policy in five Asian countries: Filling in the "hollow middle"?

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  • Hernandez, Leonardo
  • Montiel, Peter J.

Abstract

Following the 1997-1998 financial turmoil, crisis countries in Asia moved toward either floating or fixed exchange rate systems, superficially consistent with the bipolar view of exchange rate regimes and the "hollow middle" hypothesis. But some observers have claimed that, despite the changes in their de jure exchange rate regimes, the crisis countries' policies have de facto been very similar in the post- and pre-crisis periods. This paper analyzes the evidence and concludes that, except for Malaysia, which adopted a hard peg and imposed capital controls, crisis countries are floating more than before, though less than "real" floaters do. But the intermediate exchange rate policies pursued by most of the crisis countries during the post-crisis period can be justified on second-best arguments.
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Suggested Citation

  • Hernandez, Leonardo & Montiel, Peter J., 2003. "Post-crisis exchange rate policy in five Asian countries: Filling in the "hollow middle"?," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 336-369, September.
  • Handle: RePEc:eee:jjieco:v:17:y:2003:i:3:p:336-369
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    3. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
    4. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    5. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    6. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-548, September.
    7. Aizenman, Joshua & Marion, Nancy, 2003. "The high demand for international reserves in the Far East: What is going on?," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 370-400, September.
    8. repec:idb:wpaper:418 is not listed on IDEAS
    9. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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