Dollar Bloc or Dollar Block: External Currency Pricing and the East Asian Crisis

Cook, David E.; Devereux, Michael B.

doi:10.2139/ssrn.700783

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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

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: May 2004

Abstract

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

Suggested Citation: Suggested Citation

Cook, David E. and Devereux, Michael B., Dollar Bloc or Dollar Block: External Currency Pricing and the East Asian Crisis (May 2004). FRB of San Francisco Working Paper No. 2004-35, Available at SSRN: https://ssrn.com/abstract=700783 or http://dx.doi.org/10.2139/ssrn.700783