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Monetary and exchange rate stability in South and East Asia

  • Bauer, Christian
  • Herz, Bernhard

Regaining exchange rate stability has been a major monetary policy goal of East Asian countries in the aftermath of the 1997/98 currency crisis. While most countries have abstained from re-establishing a formal US Dollar peg, they have typically managed the US Dollar exchange rate de facto. We show that most of these countries were able to regain their monetary credibility within a relatively short time period. The Argentine crisis in 2001 caused a minor setback in this process for some countries. We measure the credibility of monetary policy by separating the fundamental and excess volatility of the exchange rate on the basis of a chartist-fundamentalist model. The degree of excess volatility is interpreted as the ability of the central bank to manage the exchange rate via the coordination channel.

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Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 17 (2009)
Issue (Month): 3 (June)
Pages: 352-371

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Handle: RePEc:eee:pacfin:v:17:y:2009:i:3:p:352-371
Contact details of provider: Web page: http://www.elsevier.com/locate/pacfin

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