Monetary and Exchange Rate Stability in South East Asia
Revue Economique, Les nouvelles frontières de l'Union Européenne, Vol. 57, pp. 899-917, 2006
30 Pages Posted: 24 Jul 2007
Regaining exchange rate stability has been a major monetary policy goal of East Asian countries in the aftermath of the 1997/98 currency crisis. While most countries have abstained from re-establishing a formal US Dollar peg, they have typically managed the US Dollar exchange rate de facto. We show that most of these countries were able to regain their monetary credibility within a relatively short time period. The Argentine crisis in 2001 caused a minor setback in this process for some countries. We measure the credibility of monetary policy by separating the fundamental and excess volatility of the exchange rate on the basis of a chartist fundamentalist model. The degree of excess volatility is interpreted as the ability of the central bank to manage the exchange rate via the coordination channel.
Keywords: monetary policy, exchange rate policy, credibility, technical trading, East Asia
JEL Classification: D84, E42, F31
Suggested Citation: Suggested Citation