By Lok-Sang Ho, Chi-Wa Yuen (auth.), Lok-Sang Ho, Chi-Wa Yuen (eds.)
The Asian predicament of 1997-1998 used to be a tremendous impression on macroeconomic considering touching on trade price regimes, the functioning of overseas associations, equivalent to the IMF and the realm financial institution, and overseas contagion of macroeconomic instability from one state to a different.
Exchange price Regimes and Macroeconomic Stability bargains views on those concerns from the viewpoints of 2 Nobel Laureates, an IMF economist, and Asian economists. This publication contributes new principles to the continued debate at the position of family financial experts and foreign associations in decreasing the chance of overseas monetary crises, in addition to the issues linked to numerous trade cost regimes from the point of view of macroeconomic balance.
Overall, the chapters contained during this quantity supply fascinating views, that have been influenced by way of the hot occasions within the foreign currencies marketplace. they supply an invaluable reference for a person attracted to the advance of alternate fee regimes, and symbolize enormous mirrored image by means of economists part a century after Bretton Woods.
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The Asian drawback of 1997-1998 was once a massive impact on macroeconomic considering pertaining to trade expense regimes, the functioning of overseas associations, resembling the IMF and the area financial institution, and foreign contagion of macroeconomic instability from one state to a different. alternate expense Regimes and Macroeconomic balance deals views on those matters from the viewpoints of 2 Nobel Laureates, an IMF economist, and Asian economists.
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Extra resources for Exchange Rate Regimes and Macroeconomic Stability
Higher interest rates force fire sale of assets in order to pay back loans. When interest rates are raised to high levels, this lowers the values of assets, and debtors are forced to sell assets to foreigners at fire sale prices. 5 Social Consequences The distributional impacts, in turn, can have large social consequences, illustrated by Indonesia and Malaysia. An awareness of how these consequences might differ among countries also called for policies to be adapted to the situation in each country.
Although the 1998 episode may not be enough to definitively falsify the alleged virtue of the currency board being an automatic foolproof mechanism that works best when left alone, at the minimum, it certainly shows that leaving this mechanism on automatic pilot can result in very high interest rates for a much Ion ger period. The more general and more important point is not whether a currency board can survive any speculative attack at all but the cost of surviving such an attack. Take the case of a drop in foreign demand that requires the real exchange rate be depreciated in order to preserve external equilibrium.
PREMISES UNDERLYING IMF MONETARY POLICY To analyze the issue, let me try to describe what I see as the underlying premises of the IMF policies. As I see it, one of the central reasons for the failure of the IMF policies was that throughout the crisis in 1997/1998, the IMF employed an outdated economic model. 36 Exchange Rate Regimes and Macroeconomic Stability That model has three premises. e. through raising interest rate, outweigh the costs. Let us look at each of those premises. Is it desirable to prevent the further deterioration of the exchange rate?