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

See all articles by Bernhard Herz

Bernhard Herz

University of Bayreuth

Christian Bauer

University of Trier; Universität Trier

Abstract

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

Herz, Bernhard and Bauer, Christian, Monetary and Exchange Rate Stability in South East Asia. Revue Economique, Les nouvelles frontières de l'Union Européenne, Vol. 57, pp. 899-917, 2006, Available at SSRN: https://ssrn.com/abstract=1002591

Bernhard Herz (Contact Author)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Christian Bauer

University of Trier ( email )

15, Universitaetsring
Trier, 54286
Germany

Universität Trier ( email )

Germany