Dollar Bloc or Dollar Block: External Currency Pricing and the East Asian Crisis
FRB of San Francisco Working Paper No. 2004-35
37 Pages Posted: 20 Apr 2005
Date Written: May 2004
This paper provides a quantitative investigation of the East Asian crisis of 1997-99. The two essential features of the crisis that we focus on 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 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.
Keywords: Financial crises - Asia
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