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Depreciation and recessions in East Asia


  • Ramon Moreno


One of the striking characteristics of the recent currency crises in East Asia is the sharp reductions in output that followed depreciations. This paper draws on an earlier literature on contractionary depreciations to motivate an empirical model of the relationship between exchange rate and output fluctuations in a panel of six East Asian economies. There is evidence of a negative relationship between economic activity and the real exchange rate in East Asia. Informal examination of output fluctuations around episodes of sharp depreciation over the 1975-1996 period conveys the impression that such episodes are associated with modest expansion and contraction cycles, with output above trend before a sharp depreciation episode and below trend after it. The cyclical pattern is accentuated when the sharp depreciation episode occurs during a banking crisis. The very steep output declines that followed the 1997 sharp depreciation episodes appear to reflect a high concentration of banking crises of unprecedented severity. However, explicitly accounting for sharp depreciation episodes or banking crises does not add to the explanatory power of the benchmark model over the period 1975-1996.

Suggested Citation

  • Ramon Moreno, 1999. "Depreciation and recessions in East Asia," Economic Review, Federal Reserve Bank of San Francisco, pages 27-40.
  • Handle: RePEc:fip:fedfer:y:1999:p:27-40:n:3

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    Cited by:

    1. Yu Hsing, 2004. "Response of Venezuelan output to monetary policy, deficit spending, and currency depreciation: a VAR model," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, December.
    2. Komarek, Lubos & Melecky, Martin, 2005. "Currency Crises, Current Account Reversals and Growth : The Compounded Effect for Emerging Markets," The Warwick Economics Research Paper Series (TWERPS) 735, University of Warwick, Department of Economics.
    3. Mark Crosby & Glenn Otto, 2001. "Growth and the Real Exchange Rate - Evidence from Eleven Countries," Working Papers 082001, Hong Kong Institute for Monetary Research.
    4. Lanteri, Luis N., 2001. "Choques externos y reasignación sectorial de recursos. Evidencia para la economía argentina," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(271), pages 369-403, julio-sep.
    5. Mikesell, Raymond F., 2001. "Dual Exchange Markets for Countries Facing Financial Crises," World Development, Elsevier, vol. 29(6), pages 1035-1041, June.
    6. Aßmann, Christian, 2008. "Assessing the Effect of Current Account and Currency Crises on Economic Growth," Economics Working Papers 2008-01, Christian-Albrechts-University of Kiel, Department of Economics.
    7. HSING, Yu & GUISAN, M.C., 2011. "Real Exchange Rate, Foreign Trade And Real Output Growth: The Case Of Spain, 1970-2009," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).
    8. Komarek, Lubos & Komarkova, Zlatuse & Melecky, Martin, 2005. "Current Account Reversals and Growth: The Direct Effect Central and Eastern Europe 1923-2000," The Warwick Economics Research Paper Series (TWERPS) 736, University of Warwick, Department of Economics.
    9. Aßmann, Christian, 2007. "Determinants and Costs of Current Account Reversals under Heterogeneity and Serial Correlation," Economics Working Papers 2007-17, Christian-Albrechts-University of Kiel, Department of Economics.

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