Structural Break in the Real Exchange Rates: The Asian Crisis

Hoe Sang Chung; Young-Yong Kim

doi:10.11644/KIEP.JEAI.2009.13.1.197

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East Asian Economic Review Vol. 13, No. 1, 2009. pp. 91-110.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2009.13.1.197

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Structural Break in the Real Exchange Rates: The Asian Crisis

Author
Hoe Sang Chung	Chonnam National University;Chonnam National University and Korea Economic Research Institute hoesangchung@gmail.com
Young-Yong Kim	yykim@keri.org

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

This study estimates the break point in the residual variance and in the propagation mechanism of the real exchange rates at about the time of the Asian crisis that occurred in 1997, and provides some explanations for the breaks. The breaks in the residual variance increased the volatility of the real exchange rates, which given the overall effects of common adverse shocks to the countries seems to be reinforced by the sudden withdrawal of Japanese commercial banks’ lending to the region. And the subsequent breaks in the propagation mechanism reduced the volatility, which reflects the change in the government policy stance to result in smoothing the pace of appreciation. In addition, the breaks in the nominal exchange rates rather than in the price ratios are mainly responsible for the breaks in the real exchange rates.

JEL classification: F3

Keywords

Asian Crisis, Structural Break, Real Exchange Rate, Residual Variance, Propagation Mechanism, Japanese Commercial Banks, Reserve Accumulation

Language

Korean

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