This paper analyzes the Asian financial crisis of 1997-1998 in Korea, Thailand, Malaysia, and the Philippines.
Written in 2004; 6,090 words; 28 sources; MLA; $ 143.95
Paper Summary:
This study applies ordinary least squares (OLS) estimation procedures, with and without lags, to identify the causes of currency crises in selected economies during the 1997-98 East Asian currency and financial crisis. The author states that the cause of the crisis was attributed to initial macroeconomic conditions, weak macroeconomic fundamentals, financial sector regulation, and policy reaction. The paper relates that the empirical results were consistent with previous literature on currency crises; episodes of depreciation appear to be associated with the depletion of foreign exchange reserves and the increase in foreign liabilities. Equations. Tables.
Table of Contents
Introduction
Classical Theory
Empirical Research Explaining Currency Crisis
First Generation Models
Second Generation Models
Third Generation Models
Policy Reactions and the Role of the IMF
Conceptual Model
Initial Conditions
Deterioration of Macroeconomic Fundamentals
International Sector and Financial Regulation
Macroeconomic Policy
Ideal and Actual Data
Measuring the Symptoms
Measuring Currency Crisis
Actual Data
Results and Analysis
Conclusion
Appendix I: Summary of Data and Indicators Used in Previous Studies
Appendix II: General F-Tests
Appendix III: Statistical Analysis for Multicollinearity and Heteroskedasticity
Appendix IV: E-views Output of Granger Causality Tests
From the Paper:
"Although Korea, the Philippines and Thailand followed the classic prescription of raising their interest rate to defend their currencies, all three saw continued depreciations, well in excess of what would be predicted by the currency crisis models Furman and Stiglitz (1997). From a policy perspective, Goldfajn and Gupta (1998) look the real exchange rate "undervaluation" episodes in 80 countries following the crises to assess whether tight monetary policy brings about a recovery in the real exchange rate through a nominal appreciation of the exchange rate. They find that in their total sample, tight monetary policy increases the probability of recovery by about 10 percentage points. But among countries undergoing simultaneous banking and currency crisis, as in East Asia, tight monetary policy is associated with roughly 10 percentage points lower probability of success. Both of these differences are statistically significant."
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