Using a basic monetary model, we assess the effectiveness of stock prices as a leading indicator of
the East Asian currency crisis in 1997 and 1998. Stock prices are incorporated into a monetary model,
through the wealth effect postulated by Friedman [J. Pol. Econ. 96 (1988) 221]. In addition to the
domestic stock price, we also incorporate the stock prices of Hong Kong, China and Japan. Using
monthly data, the results indicate that the domestic stock price, the Hong Kong stock price and
particularly US prices are significant leading indicators of the crisis. Causality tests suggest evidence
of bi-causality between the stock markets and foreign exchange markets