The US Sub-prime Crises and Extreme Exchange Market Pressures in Asia

Abstract

The primary objective of this study is to examine the evidence of occurrences of extreme market pressure of currencies of a number of Asian economies against the US dollar during the period of 2000-2009. In particular, we are interested in investigating the severity of these pressures during the recent US sub-prime crisis of 2007-2009. Were the currencies of these economies subjected to indiscriminate selling pressures during the period of the crisis? Was the heightened severity of the selling pressures associated with a particular event during the sub-prime crisis, such as the collapse of the Lehman-Brothers? Our findings confirm the globally indiscriminate impacts of the sub-prime crisis on the countries examined and the greatest impact was felt and experienced by these economies around the time of the Lehman-Brothers¡¯ collapse during the last quarter of 2008. Our findings offer far-reaching implications in terms of the linkages between macroeconomic and financial stability.