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Risk and Asian exchange rate regimes

Author

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  • Goyal, Ashima
  • Agarwal, Ankita

Abstract

A panel regression gives evidence that more flexibility in Asian exchange rates reduces risk associated with bank borrowing abroad, but deviations from mean exchange rates, and from the renminbi, increase risk. Since the exchange rate regime affects bank behavior and the incentives to hedge, the results broadly support the bank run over the moral hazard view of twin banking and currency crisis. The results suggest that flexibility in exchange rates is required for Asian EMEs, but the flexibility has to be limited, and it depends on more flexibility in the renminbi. This has implications for current global imbalances in reserves and feasible adjustment paths.

Suggested Citation

  • Goyal, Ashima & Agarwal, Ankita, 2005. "Risk and Asian exchange rate regimes," MPRA Paper 24309, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:24309
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    References listed on IDEAS

    as
    1. Mr. Olivier D Jeanne, 2003. "Why Do Emerging Economies Borrow in Foreign Currency?," IMF Working Papers 2003/177, International Monetary Fund.
    2. Roberto Chang & Andrés Velasco, 2000. "Liquidity Crises in Emerging Markets: Theory and Policy," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 11-78, National Bureau of Economic Research, Inc.
    3. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "Paper tigers?: A model of the Asian crisis," European Economic Review, Elsevier, vol. 43(7), pages 1211-1236, June.
    4. Goyal Ashima, 2005. "Asian Reserves and the Dollar: Is Gradual Adjustment Possible?," Global Economy Journal, De Gruyter, vol. 5(3), pages 1-26, September.
    5. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2001. "Hedging and financial fragility in fixed exchange rate regimes," European Economic Review, Elsevier, vol. 45(7), pages 1151-1193.
    6. Roberto Chang & Andrés Velasco, 2000. "Liquidity Crises in Emerging Markets: Theory and Policy," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 11-78 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Goyal Ashima, 2005. "Asian Reserves and the Dollar: Is Gradual Adjustment Possible?," Global Economy Journal, De Gruyter, vol. 5(3), pages 1-26, September.

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    More about this item

    Keywords

    exchange rate flexibility; risk; hedging; moral hazard; bank runs;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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