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The East Asian Crisis; Macroeconomic Developments and Policy Lessons

  • Kalpana Kochhar
  • Prakash Loungani
  • Mark R. Stone

This paper reviews macroeconomic developments during the first year of the crisis in east Asia and draws some preliminary policy lessons. The crisis is rooted in the interaction of large capital inflows and weak private and public sector governance. At the same time, macroeconomic adjustment in these countries has resulted in some surprising outcomes, including severe economic contractions, low inflation, and rapid external adjustment. The lessons for crisis resolution include the importance of tight monetary policy early on for exchange rate stabilization, flexible fiscal policy, and comprehensive structural reform. Crises are avoided by prudent macroeconomic policies, diligent bank supervision, transparent data dissemination, strong governance, and forward-looking policymaking, even in good times.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/128.

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Length: 55
Date of creation: 01 Sep 1998
Date of revision:
Handle: RePEc:imf:imfwpa:98/128
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  1. Alwyn Young, 1993. "Lessons from the East Asian NICs: A Contrarian View," NBER Working Papers 4482, National Bureau of Economic Research, Inc.
  2. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
  3. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  4. Reinhart, Carmen & Khan, Mohsin, 1995. "Capital Flows in the APEC Region," MPRA Paper 8200, University Library of Munich, Germany.
  5. Marcus Noland & Li-Gang Liu & Sherman Robinson, 1998. "Global Economic Effects of the Asian Currency Devaluations," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa56, 03.
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