External Currency Pricing and the East Asian Crisis

42 Pages Posted: 18 Nov 2004

See all articles by David E. Cook

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Michael B. Devereux

University of British Columbia (UBC) - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: September 2004

Abstract

This Paper provides a quantitative investigation of the East Asian crisis of 1997-99. There are two essential features of the crisis that we focus on. These are: a) the crisis was a regional phenomenon; the depth and severity of the crisis was exacerbated by a large decline in regional demand; and b) the practice of setting export goods prices in dollars (which we document empirically) led to a powerful internal propagation effect of the crisis within the region, contributing greatly to the decline in regional trade flows. We construct a multicountry macroeconomic model with these two features, and show that it can do a reasonable job of accounting for the response of the main macroeconomic aggregates in Korea, Malaysia, and Thailand during the crisis. Without the regional dimension and dollar pricing of exports, the model fails to account for the depth and severity of the crisis.

Keywords: East Asian crisis, small open economy, exchange rate

JEL Classification: F40

Suggested Citation

Cook, David E. and Devereux, Michael B., External Currency Pricing and the East Asian Crisis (September 2004). CEPR Discussion Paper No. 4642. Available at SSRN: https://ssrn.com/abstract=622083

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

Michael B. Devereux (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-2542 (Phone)
604-946-6271 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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