Exchange Rate Volatility, Trade and Â“Fixing for LifeÂ” in Thailand
At the outset of the 1997 financial crisis in East Asia, the quest to find a more suitable exchange rate policy has become an urgent policy challenge facing the East Asian economies. One of key policies agreed under ThailandÂ’s August 1997 Letter of Intent (LOI) with the IMF was to adopt a more flexible exchange rate policy. The implementation took place in the early months of the crisis, but most of these Southeast Asian economies, including Thailand, have re-adopted their pre-1997 crisis rigid exchange rate policy in early 1999 (McKinnon, 2001). To grasp this Â“fixing for your lifeÂ” phenomenon (Calvo and Reinhart 2000a and 2000b), we test the impact of real exchange rate volatilities of ThailandÂ’s baht against the Japanese yen and the US dollar on the performance of the countryÂ’s bilateral exports and imports with Japan and the U.S. from 1970 to first quarter of 1997.
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