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An Empirical Analysis of East Asia's Pre-crisis Daily Exchange Rates

Author

Listed:
  • Alba, Joseph Dennis

    (Nanyang Technological University)

  • Park, Donghyun

    (Asian Development Bank)

Abstract

The exchange rate peg to the United States dollar is widely believed to have been a major cause of the Asian financial crisis of 1997–1998. Rigid exchange rates may have invited massive capital inflows into East Asia by creating a false sense of security among investors. A substantial empirical literature examines the actual behavior of pre-crisis exchange rates in the region. This paper seeks to contribute to this literature by using daily data compared to other studies that tend to use monthly data and other lower-frequency data. The paper applies the GARCH-M model to investigate the statistical properties of East Asia's bilateral exchange rates vis-a-vis the United States dollar. Systematic relationships among the dollar exchange rates of the regional currencies are sought. The results confirm the rigidity of East Asia's pre-crisis bilateral dollar exchanges and support the existence of systematic relationships consistent with financial contagion. The findings lend some support to the region's post-crisis moves toward more flexible exchange rates.

Suggested Citation

  • Alba, Joseph Dennis & Park, Donghyun, 2007. "An Empirical Analysis of East Asia's Pre-crisis Daily Exchange Rates," ADB Economics Working Paper Series 104, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0104
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    References listed on IDEAS

    as
    1. Whitney K. Newey & Douglas G. Steigerwald, 1997. "Asymptotic Bias for Quasi-Maximum-Likelihood Estimators in Conditional Heteroskedasticity Models," Econometrica, Econometric Society, vol. 65(3), pages 587-600, May.
    2. Ramkishen S. Rajan & Reza Siregar & Iman Sugema, 2003. "Why was there a precrisis capital inflow boom in Southeast Asia?," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(3), pages 265-283.
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    More about this item

    Keywords

    exchange rate peg; financial contagion; GARCH-M model; pre-crisis exchange rates; United States dollar;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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