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The Domestic Effects of Tight Monetary Policy in the Wake of Thailand's Financial Crisis

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  • Jonathan E. Leightner

Abstract

One of the most contentious and important questions remaining about Asia's financial crisis is whether or not the policies advocated by the IMF were excessively severe, causing an unnecessary degree of damage to the domestic economies of Indonesia, South Korea, and Thailand. In Thailand, the country examined in this paper, the conditions for the IMF loan of August 1997 included the Thai government allowing weak financial firms to fail and implementing tight monetary policies. By May of 1998, only thirty-five of Thailand's ninety-one finance/securities companies still operated and four of Thailand's fifteen banks had been taken over by the government. Thailand's remaining banks and finance companies lived under the threat of having their capital written off and management replaced. This paper uses data envelopment analysis (DEA) to find empirical evidence that the resulting reduction of credit affected all sectors of Thailand's economy. The strong and healthy sectors of Thailand's economy were hurt, along with the weak sectors.

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  • Jonathan E. Leightner, 2002. "The Domestic Effects of Tight Monetary Policy in the Wake of Thailand's Financial Crisis," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 7(2), pages 242-266.
    • Handle: RePEc:taf:rjapxx:v:7:y:2002:i:2:p:242-266
    DOI: 10.1080/13547860220134833
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    References listed on IDEAS

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    1. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    2. Ila M. Semenick Alam & Jonathan E. Leightner, 2001. "The Impact Of The Financial Crisis On The Productivity Of Thailand'S Financial Institutions," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 46(02), pages 153-177.
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    Cited by:

    1. Xinsheng Lu & Francis In, 2006. "Monetary Policy, Open Market Operations and New Zealand Interest-Rate and Exchange-Rate Markets," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 11(4), pages 462-481.
    2. Leightner, Jonathan E. & Inoue, Tomoo, 2007. "Tackling the omitted variables problem without the strong assumptions of proxies," European Journal of Operational Research, Elsevier, vol. 178(3), pages 819-840, May.

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