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Please use this identifier to cite or link to this item: http://purl.umn.edu/43998

Title: Real Effects of Movements in Nominal Exchange Rates: Application to the Asian Crisis
Authors: Yelten, E. Sibel
Keywords: optimum currency area
Asian crisis
exchange rate basket
currency peg
JEL Codes: E32
F31
Issue Date: 2003-11
Abstract: This paper analyzes the ad hoc decision of three Asian countries to peg their currency to the U.S. dollar prior to the Asian crisis. It uses the Sjaastad model to estimate the optimal basket weights for Thailand, Korea, and Singapore. The analysis in this paper differs from the optimal basket research since we are not searching for an ad hoc optimal basket; rather, the basket is the solution to the problem. For Thailand and Korea, the correct weights of the dollar in the basket are estimated to be 44 and 65 percent, respectively, which differ significantly from the actual weight of 100 percent for the U.S. dollar in their currency basket prior to the 1997 Asian crisis. Singapore, with a weight of 85 percent for the U.S. currency, is closer to a dollar peg, and therefore was less affected by the large depreciation of the European currencies and the yen toward the dollar that occurred prior to the Asian exchange rate crisis. Besides the fact that Singapore had better economic fundamentals prior to the crisis, the fact that the optimal basket for that country is closer to a dollar peg is an additional reason why its economy was less severely hit by the crisis.
URI: http://purl.umn.edu/43998
Identifiers: Print ISSN 1514-0326
Online ISSN 1667-6726
Institution/Association: Journal of Applied Economics>Volume 6, Number 2, November 2003
Total Pages: 19
From Page: 341
To Page: 359
Collections:Volume 06, Number 2, November 2003

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