Financial Liberalization and the Information Content of Money in Indonesia, Korea and the Philippines
IMF Working Papers No. 93-88
44 Pages Posted: 5 Jan 2005
Date Written: November 1993
Using a VAR approach, this paper studies the relationship between money, output and prices in a group of Pacific Basin countries that underwent financial sector reform during the 1980s: Indonesia, Korea and the Philippines. Special attention is paid to assessing the information content of money. Money was found to contain valuable advance information on output and prices in Korea, on prices only in the Philippines, and did not contain any advance information in Indonesia. The introduction of financial sector reform was not found to lead to a structural break in the price and output equations; however, the information content of money was affected. Further tests show that exchange and interest rates - variables that gained flexibility with the reforms - contain valuable information about future developments in prices in Korea and the Philippines.
Keywords: financial liberalization, information content of money
JEL Classification: E52
Suggested Citation: Suggested Citation