The Japanese Economy and Economic Policy in Light of the East Asian Financial Crisis

The depth and breadth of the East Asian financial crisis has added a sense of acute urgency for some concrete and credible measures by policy-makers to revitalise the Japanese economy. While steps to be taken for the long-run competitiveness and economic revitalisation of the Japanese economy are clear (with the only doubt being about whether and how effectively they will be implemented), those needed to boost aggregate demand in the shortrun are far less obvious. Given the near-zero nominal interest rates in Japan, most observers argue that an expansionary monetary policy would be ineffective. However, as with Krugman (1998a,b), we argue that once a distinction is made between real and nominal interest rates, it is logically possible for monetary policy to be effective in raising demand if it is able to create inflationary expectations. This could probably be effected through explicit announcements by the Bank of Japan of the intention to target a certain inflation rate in the future.Japanese economy, economic policy, East Asia, financial crisis

Managing New-Style Currency Crises: The Swan Diagram Approach Revisited

The new-style currency crises that have inflicted a number of developing and emerging economies of late are characterized by sudden stops in capital inflows and adverse balance sheet effects. Given the potential high costs of these crises, there remains an ongoing debate on how they might best be managed when they do arise. This paper argues that the age-old Swan diagram, appropriately modified, is able to provide useful insights into how a country might manage a new-style crisis via a combination of adjustment (which involves expenditure switching and reducing polices) and financing.Adjustment, Expenditure Reducing, Expenditure Switching, Financing, Internal balance, External balance, Swan diagram

Financial sector de-regulation in Emerging Asia: Focus on foreign bank entry

Over the last decade many emerging Asian economies have been liberalizing their financial sectors, including opening up of their banking systems to foreign competition. This paper examines the extent of de jure and de facto policies in Asia with regard to the introduction of greater foreign competition. To preview the main conclusion, while there has clearly been greater international financial liberalization in the region, Asia lags behind emerging Europe and Latin America when it comes to the relative significance of foreign banks in their respective domestic economies. The paper goes on to discuss possible reasons behind Asia’s relatively cautious approach towards this policy.Financial sector de-regulation; Foreign bank entry; Emerging Asia

Inflation Targeting Arrangements in Asia: Exploring the Role of the Exchange Rate

Since the Asian crisis it has been recognized that exchange rate and monetary policy strategies must involve a “fairly high” element of flexibility rather than a single-minded defense of a particular rate. One way this flexibility might be introduced is by a country adopting an open economy inflation targeting arrangement. This particular policy regime has been officially implemented in several Asian countries in recent years, but the normative implications of inflation targeting appear at times to be at odds with the requirements regarding exchange rate flexibility. This paper presents an analysis of some of the issues relevant to Asian central banks implementing an inflation targeting arrangement with specific focus on the role of the exchange rate.Asia, exchange rate regime, inflation targeting arrangement, fear of floating, monetary policy rule, pass through

Have Exchange Rate Regimes in Asia become More Flexible Post crisis? Re- Visiting the Evidence

There is a broad consensus that the soft US dollar pegs operated by a number of Asian countries prior to 1997 contributed to the regional financial crisis of 1997-98. There is, however, much less agreement on the types of exchange rate regimes operated by many Asian countries since the crisis. Can they still be characterized as soft US dollar pegs, or have they become genuinely more flexible? This paper revisits the evidence regarding the extent of exchange rate flexibility in the five Asian countries (Indonesia, Korea, Malaysia, the Philippines and Thailand) using alternative methodologies and data spanning the pre- and post-crisis time period. Given the diversity of measures of de facto regimes in the literature, the use of alternative methodologies in this paper is critical as a means of obtaining an accurate and robust indication of the type of exchange rate regime operated by a country.Asia, exchange rate regime, inflation targeting, interest rates, reserves, soft dollar peg

Management of exchange rate regimes in emerging Asia

AbstractThis paper revisits the issue of exchange rate regimes in emerging Asia over the decade 1999–2009. It finds that while Asia is home to a wide array of exchange rate regimes, there are signs of gradual movement toward somewhat greater exchange rate flexibility in many of the regional countries. There appears to be evidence of an apparent “fear of appreciation” which is manifested in asymmetric exchange rate intervention—i.e., a willingness to allow depreciations but reluctance to allow appreciations. This policy of effective exchange rate undervaluation is rather unorthodox from a neoclassical sense, but is consistent with a development policy centered on suppressing the price of non-tradable goods relative to tradables (i.e., real exchange rate undervaluation)

Are crisis-induced devaluations contractionary?

Why are some currency crises followed by economic contractions while others are not? This paper is an attempt at answering this query. In particular, we investigate two closely related questions. First, we explore whether there is a difference in the output effects of a devaluation during “normal” periods versus crises ones; after all, during noncrisis periods, real exchange devaluation is seen as an important policy option for promoting exports and output growth. Yet, the literature has not made a distinction between crisis and noncrisis periods. To preview the main conclusion, we find that the contractionary effects tend to exist only during the crisis period. Building on this, we go one to explore the factors that cause a crisis-induced devaluation to be contractionary.Financial crises ; Foreign exchange rates

Financial sector de-regulation in Emerging Asia: Focus on foreign bank entry

Over the last decade many emerging Asian economies have been liberalizing their financial sectors, including opening up of their banking systems to foreign competition. This paper examines the extent of de jure and de facto policies in Asia with regard to the introduction of greater foreign competition. To preview the main conclusion, while there has clearly been greater international financial liberalization in the region, Asia lags behind emerging Europe and Latin America when it comes to the relative significance of foreign banks in their respective domestic economies. The paper goes on to discuss possible reasons behind Asia’s relatively cautious approach towards this policy

Financial sector de-regulation in Emerging Asia: Focus on foreign bank entry

Over the last decade many emerging Asian economies have been liberalizing their financial sectors, including opening up of their banking systems to foreign competition. This paper examines the extent of de jure and de facto policies in Asia with regard to the introduction of greater foreign competition. To preview the main conclusion, while there has clearly been greater international financial liberalization in the region, Asia lags behind emerging Europe and Latin America when it comes to the relative significance of foreign banks in their respective domestic economies. The paper goes on to discuss possible reasons behind Asia’s relatively cautious approach towards this policy