Monetary Policy in the Aftermath of Currency Crises: The Case of Asia

21 Pages Posted: 31 Dec 2002

See all articles by Taimur Baig

Taimur Baig

International Monetary Fund (IMF)

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

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Abstract

The paper evaluates monetary policy and its relationship with the exchange rate in the five Asian crisis countries. The findings are compared with previous currency crises in recent history. It is found that there is no evidence of overly tight monetary policy in the Asian crisis countries in 1997 and early 1998. There is also no evidence that high interest rates led to weaker exchange rates. The usual tradeoff between inflation and output when raising interest rates suggested the need for a softer monetary policy in the crisis countries to combat recession. However, in some countries, corporate balance sheet considerations suggested the need to reverse overly depreciated currencies through firmer monetary policy.

Suggested Citation

Baig, Taimur and Goldfajn, Ilan, Monetary Policy in the Aftermath of Currency Crises: The Case of Asia. Review of International Economics, Vol. 10, pp. 92-112, 2002. Available at SSRN: https://ssrn.com/abstract=309455

Taimur Baig (Contact Author)

International Monetary Fund (IMF) ( email )

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Ilan Goldfajn

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