When analyzing the appropriate response for monetary policy during a currency crisis it is important to keep in mind two distinct channels: (a) the impact of raising interest rates on exchange rates; and (b) the direct impact of exchange rate changes on output. The first pertains to the monetary...

Lecture at RIS, New Delhi December 2005

Policy makers are particularly concerned about the extent and speed of exchange rate pass-through into domestic prices. However, in recent times there seems to be a growing degree of disconnect between exchange rate changes and domestic consumer prices in general, or, for that matter, even into...

Most standard indicators suggest that India’s reserve stock is more than adequate. The rapid stockpiling of foreign exchange reserves implies that the RBI has been leaning-against-the-wind to keep down the value of the Indian Rupee. As India has become more export-oriented it has become...

Two features of East Asia’s recovery from the financial turmoil of 1997- 98 appear to be rather paradoxical. First, the regional economies (except Hong Kong, China and Malaysia) have allowed a relatively greater albeit modest degree of variability of their currencies according to market...

An important and vigorous policy debate ongoing in Asia concerns the impact of the economic rise of the PRC on the rest of the region. This paper examines the relative performances of the PRC, selected ASEAN countries (Indonesia, Malaysia, the Philippines, Singapore and Thailand), and India over...

The currency crises of the 1990s, particularly the one that hit Southeast Asia since the devaluation of the Thai baht on July 2, 1997, are suggestive of the relevance and pervasiveness of contagion or negative spillover effects that are largely regional in scope. As such, one of the mantras...

The infeasibility of a monetary union for East Asia in the near future, as well as the limitations of other forms of super fixes, appears to leave a flexible regime as the only viable policy option. This paper first deliberates on the case for and against a flexible regime. To anticipate the...

One of the more important concepts in open macroeconomics is the “equilibrium real exchange rate†(ERER). Real exchange rate misalignments are argued to have been the cause of loss of competitiveness and growth slowdowns and eventual currency crises (in the event of sustained...

Despite numerous empirical studies examining various facets of the topic, the degree of intraregional financial integration in East Asia remains a matter of vigorous debate. This paper offers a selective survey of the recent empirical literature on financial integration, the focus being on...