Dollar Bloc or Dollar Block: External Currency Pricing and the East Asian Crisis

Cook, David; Devereux, Michael B.

doi:10.24148/wp2004-35

Working Paper

Dollar Bloc or Dollar Block: External Currency Pricing and the East Asian Crisis

Abstract: This paper provides a quantitative investigation of the East Asian crisis of 1997-1999. The two essential features of the crisis that we focus on are (a) the crisis was a regional phenomenon; the depth and severity of the crisis were exacerbated by a large decline in regional demand, and (b) the practice of setting export goods prices in dollars (which we document empirically) led to a powerful internal propagation effect of the crisis within the region, contributing greatly to the decline in regional trade flows. We construct a model with these two features and show that it can do a reasonable job of accounting for the response of the main macroeconomic aggregates in Korea, Malaysia, and Thailand during the crisis.

https://doi.org/10.24148/wp2004-35

Status: Published in Emerging markets and macroeconomic volatility : a conference (2004: June 4-5)