4-21 - The Asian Financial Crisis Two theories:...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
The Asian Financial Crisis Two theories: fundamentals vs. panic Did not go to other places in the world Real-side vs. financial linkages In crisis, financial linkages much more important Direct vs. indirect linkages Contagion – July 4, 1997 – Thailand crisis starts Goes to Indonesia, skips Philippines – had undergone a number of reforms – few Japanese banks invested there October – Taiwan devalued NTD, caused second round of devaluation Korea then collapsed July-December 1997: 800 won to 2000 won 2400-1500 rupiah Stock markets fell 50% Huge decline in output A lot of political and social unrest Question: when everything is collapsing, what should happen? – stabilizing speculation 1. Asian governments consistently released misleading information 2. IMF programs very unpopular a. Budget reform unpopular b. Bank reform very expensive China did not devalue Ham-handed IMF depressed activity, value of assets IMF had experience mostly in Latin America and Turkey Current account crises made currency peg unsustainable, caused by domestic budget problems Raise taxes, balanced budgets, strict money, etc. But Asian countries had financial system problems, not macroeconomic problems dd 1. Recall: two theories of devaluation a. Fundamental b. Panic 2. Real-side vs. financial linkages a. In crisis, financial linkages much more important 3. Direct vs. indirect linkages 4. Contagion 5. Outline of the crisis a. July 4, 1997: crisis starts in Thailand b. Spreads to Indonesia – but skips Philippines i. Philippines had implemented reforms beforehand
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
ii. Also, Japanese banks did not invest in Philippines as much, thus not as affected by withdrawal of funds c. dd 6. See above 7. International response? a.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/14/2008 for the course ECON 324 taught by Professor Noland during the Spring '08 term at Yale.

Page1 / 5

4-21 - The Asian Financial Crisis Two theories:...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online