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The Continuing Asian Financial Crisis: Global Adjustment and Trade

Author

Listed:
  • Marcus Noland

    () (Peterson Institute for International Economics)

  • Sherman Robinson

    (Peterson Institute for International Economics)

  • Zhi Wang

    (Peterson Institute for International Economics)

Abstract

In this paper we use a multi-region computable general equilibrium model to analyze the impact of the Asian crisis thus far, highlighting the implications of possible future developments in Japan and China. The main conclusion is that depreciation of the yen would tend to have an adverse impact on the rest of Asia, even if Japanese growth were to be restored. The reason is that the most affected Asian countries need to run trade surpluses over the medium-run due to weakness in domestic demand and a need to service foreign debt. A weak yen cuts into these surpluses by eroding the competitiveness of these countries both in the Japanese market and in relatively unaffected third country markets such as the United States and Western Europe. In contrast, modest devaluation of the reminbi, which restores China's external balance to its pre-crisis level, would have less impact than yen devaluation. A larger Chinese devaluation, however, would have a more negative impact on Asian trade. Moreover, any Chinese devaluation could spark renewed financial unrest. For this reason, we recommend that China focus on addressing its fundamental macro- and microeconomic problems. Under the current Chinese circumstances, exchange rate management is a second-order issue.

Suggested Citation

  • Marcus Noland & Sherman Robinson & Zhi Wang, 1999. "The Continuing Asian Financial Crisis: Global Adjustment and Trade," Working Paper Series WP99-4, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp99-4
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    Cited by:

    1. Duncan, Ronald C. & Yang, Yongzheng, 2000. "The impact of the Asian Crisis on Australia's primary exports: why it wasn't so bad," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 44(3), September.
    2. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2012. "The Macroeconomic Impacts Of Chinese Currency Appreciation On China And The Rest Of The World: A Global Computable General Equilibrium Analysis," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125010, International Association of Agricultural Economists.
    3. Xinshen Diao & Wenli Li & Erinc Yeldan, 2000. "How the Asian crisis affected the world economy : a general equilibrium perspective," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 35-59.
    4. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2012. "The macroeconomic impacts of Chinese currency appreciation on China and the rest of world : A global computable general equilibrium analysis," IFPRI discussion papers 1178, International Food Policy Research Institute (IFPRI).

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