INTEREST RATE POLICY AND ITS IMPLICATION ON THE BANKING RESTRUCTURING PROGRAMS IN INDONESIA DURING THE 1997-FINANCIAL CRISIS: AN EMPIRICAL INVESTIGATION.

Despite a number of changes in the leaderships of the Indonesian Bank Restructuring Agency (IBRA) and in the policy approaches adopted by the country to restructure the banking sector, the progress has been less than impressive. This study shows that that the selection of policy measures adopted by the monetary authorities during the post-1997 financial crisis, has adversely affected the performance of the restructured banks. In particular, the high domestic interest rate policy adopted to stabilize the local currency and to keep a tight growth of base money has not been an effective one. Instead, this policy has arguably raised the cost of bank restructuring in the country.Financial Crisis; Bank Restructuring; Interest Rate

Tranquil and Crisis Windows, Heteroscedasticity, and Contagion Measurement: MS-VAR Application of the DCC Procedure

The key objective of this study is to show that two potential shortcomings of the Determinant of Change in Covariance Matrix (DCC) procedure of Rigobon (2003), namely with the arbitrary determination of the windows, i.e., tranquil and crisis periods and the violation of its heteroscedasticity assumption under the null, can be simultaneously addressed via a simple incorporation of a Markov-Switching Vector Autoregressive (MS-VAR) approach into the overall DCC procedure. To demonstrate this, we revisit the period around the time of the East Asian crises using daily stock exchange of Indonesia, Malaysia, Philippines, Thailand, Singapore, Korea, Hong Kong and Taiwan and test whether there is a significant break or discontinuity in the stock exchange returns of the eight East Asian markets during crisis periods, especially around the time of the 1997 financial crises. In contrast to that of Rigobon (2003), our results show that the propagation of shocks shifted significantly starting with the onset of the sharp decline in the Hong Kong stock market.contagion, Markov-switching vector autoregressive, determinant of the change in the covariance matrix, stock returns

Fear of Appreciation in East and Southeast Asia: The Role of the Chinese Renminbi

The study brings into light the evidence of a fundamental role of the Chinese renminbi in shaping the exchange rate behaviour of other major Asian currencies. The results obtained suggest that there is an additional dimension to the ‘fear of appreciation’ or ‘fear of floating-in-reverse’ behaviour, initially coined by Levy-yeyati and Sturzenegger (2007) with regard to the cases of these major Asian currencies. In particular, it is found that there is a greater degree of aversion to appreciation of these same Asian currencies, specifically, the Philippine peso and the Thailand baht against the renminbi than against the US dollar. This heightened fear of appreciation against the Chinese currency confirms that trade competition indeed matters in this part of the world and that the fear continues to play a central role in the exchange rate management behaviour of major Asian currencies. This is understandable as the rising role of China as a major trading hub in the region as well as globally, renders greater influence to the renminbi on the rest of the currencies in the region.

External Debt and Exchange Rate Overshooting: The Case of Selected East Asian Countries

The accumulations of foreign debts had indeed been at a rapid phase, particularly during the last few years leading to the outbreak of the 1997 financial crises in the four most severely effected economies, namely Indonesia, the Philippines, Thailand and Korea. Interestingly, during the same period, the rates of overshooting of these East Asian currencies have also been found to increase considerably. The objective of this paper is to evaluate whether the rapid accumulation of external debts, especially since 1994, has contributed to the overshooting of the East Asian countries' currencies starting late 1997.external debt, East Asian countries, exchange rate and overshooting

Exchange Rate Asymmetry and Flexible Exchange Rates under Inflation Targeting Regimes: Evidence from Four East and Southeast Asian Countries

The paper demonstrates that the economies of Indonesia, Korea, Philippines and Thailand, which are among the first group of emerging markets to embrace the inflation targeting framework of monetary policy, tend to adopt a form of an asymmetrical exchange rate behaviour wherein appreciation pressures are restrained more substantially than depreciation pressures. In short, these four Asian economies exemplify aversion to appreciations such that greater flexibility is allowed only one side of the market. Formal econometric tests using the smooth transition autoregressive and the Markov regime switching models confirm this hypothesis of aversion to appreciation and show that the central banks of these four economies tend to tolerate more of depreciations than of appreciations of their local currencies against the US dollar.

Economic Shocks and Exchange Rate as a Shock Absorber in Indonesia and Thailand

This study investigates the requirement for the exchange rate to be a shock absorber in Indonesia and Thailand from 1986 to 2007. In general, we find that the economic shocks have predominantly been asymmetric relative to the US and the Japanese economies. Yet, the weights attached to the US dollar remain respectably high in the exchange rate management of the rupiah and the baht, in particular for the latter currency, during the post-1997 crisis. Hence, relinquishing the role of exchange rate as a shock absorber has been costly during both the pre-and the post-1997 crisis periods for these Southeast Asian countries. Furthermore, it is arguably more costly for Thailand during the post-1997, and for Indonesia during the pre-1997 crisis.Economic Shocks; Shock Absorber; Exchange Rate; Structural Vector Autoregression; Indonesia; Thailand

Economic Fundamentals and Managed Floating Exchange Rate Regime in Singapore

¡°Pegging the Singapore dollar to a basket of currencies instead of a fixed rate to the US dollar and having a transparent system were claimed by the government of Singapore to have enabled the country to weather the Asian financial crisis better. This empirical paper reviews the claim by testing the consistency of observed Singapore dollar real exchange rate against the country¡¯s key real economic fundamentals. Employing the concept of Natural Real Equilibrium Exchange Rate (NATREX), our study finds that the real effective exchange rate has floated around the NATREX rate in 1990¡¯s. Hence, our test results support the official statement.

Theory of correlations in strongly interacting fluids of two-dimensional dipolar bosons

Ground-state properties of a two-dimensional fluid of bosons with repulsive dipole-dipole interactions are studied by means of the Euler-Lagrange hypernetted-chain approximation. We present a self-consistent semi-analytical theory of the pair distribution function $g(r)$ and ground-state energy of this system. Our approach is based on the solution of a zero-energy scattering Schr\"{o}dinger equation for the "pair amplitude" $\sqrt{g(r)}$ with an effective potential from Jastrow-Feenberg correlations. We find excellent agreement with quantum Monte Carlo results over a wide range of coupling strength, nearly up to the critical coupling for the liquid-to-crystal quantum phase transition. We also calculate the one-body density matrix and related quantities, such as the momentum distribution function and the condensate fraction.Comment: 8 pages, 8 figures, submitte

Universal Aspects of Coulomb Frustrated Phase Separation

We study the consequences of Coulomb interactions on a system undergoing a putative first order phase transition. In two dimensions (2D), near the critical density, the system is universally unstable to the formation of new intermediate phases, which we call ``electronic microemulsion phases,'' which consist of an intermediate scale mixture of regions of the two competing phases. A correlary is that there can be no direct transition as a function of density from a 2D Wigner crystal to a uniform electron liquid. In 3D, %we find that if the strength of the Coulomb interactions exceeds a critical value, no phase separation occurs, while for weaker Coulomb strength, electronic microemulsions are inevitable. This tendency is considerably more pronounced in anisotropic (quasi 2D or quasi 1D) systems, where a devil's staircase of transitions is possible.Comment: 4 pg