IDEAS home Printed from
   My bibliography  Save this paper

Choice of Exchange Rate System and Macroeconomic Volatility of Three Emerging Asian Countries



This study highlights the importance of choice of exchange rate system to macroeconomic stability of small- open countries based on the outcomes of the recent exchange rate regime switches of three small Asian countries during the post Asian financial crisis period. The three selected countries are Indonesia, Malaysia and Thailand, which have high similarities in their economic structures, but have reacted very differently in mitigating the economic distortion of the 1997 financial crisis, in particular in the adoption of exchange rate system. By focussing on macroeconomic volatilities of these countries, our results show that the amplified volatilities due to the crisis were not stabilised by switching the system to a more flexible regime. For instance, Thailand and Indonesia had switched their system from a managed-float to an independent-float, and as a result, the volatilities were increased instead of reduced after the switch. The volatilities, however, were effectively stabilised after the countries made the second switch - from the independent-float back to the managed-float with pre-announcement. For Malaysia, a switch from the managed-float to the pegged system successfully reduced the volatilities. The exchange rate misalignments of the countries, except Indonesia, were also reduced when the countries switched from a flexible to a more fixed system. These empirical findings thus strongly support central banks of small-open economies to adopt a more fixed, such as the managed-float system, rather than a flexible, such as the independentfloat. However, the managed-float system needs to couple with efficient management to ensure a smooth and stable regime.

Suggested Citation

  • Hui-Boon Tan & Lee-Lee Chong, 2008. "Choice of Exchange Rate System and Macroeconomic Volatility of Three Emerging Asian Countries," NUBS Malaysia Campus Research Paper Series 2008-03, Nottingham University Business School Malaysia Campus.
  • Handle: RePEc:nom:nubsmc:2008-03

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    Exchange rate regimes; Macroeconomic volatility; Financial crisis; Exchange rate misalignment;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nom:nubsmc:2008-03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rasyad A. Parinduri). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.