The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia

In post-crisis Asia, all crisis-hit countries (except Malaysia) announced a shift from exchange rate based monetary policy framework to the explicit adoption of inflation targeting that uses interest rates as the key monetary policy operating instrument. In this study, we examine the empirical relat...

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Main Authors: Chow, Hwee Kwan, KIM, Yoonbai
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Language:English
Published: Institutional Knowledge at Singapore Management University 2004
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Online Access:https://ink.library.smu.edu.sg/soe_research/785
https://ink.library.smu.edu.sg/context/soe_research/article/1784/viewcontent/HweeKwanCHOW.pdf
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spelling sg-smu-ink.soe_research-17842019-05-12T07:19:24Z The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia Chow, Hwee Kwan KIM, Yoonbai In post-crisis Asia, all crisis-hit countries (except Malaysia) announced a shift from exchange rate based monetary policy framework to the explicit adoption of inflation targeting that uses interest rates as the key monetary policy operating instrument. In this study, we examine the empirical relationship between exchange rates and interest rates, and investigate how the dynamics between them have changed following the crisis. This is carried out by constructing a bivariate VAR-GARCH model for each of the four Asian crisis countries, namely Indonesia, Korea, Philippines and Thailand. The findings suggest these countries do not use interest rate policy more actively to stabilize exchange rates after the crisis, and provide evidence that their domestic currencies exhibit greater sensitivity to competitors’ exchange rates post-crisis. Further, the results indicate that increased exchange rate flexibility has not led to greater stability in interest rates in these economies. 2004-03-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/785 https://ink.library.smu.edu.sg/context/soe_research/article/1784/viewcontent/HweeKwanCHOW.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Exchange rate interest rate bivariate VAR-GARCH model causation in volatilities Asian Studies Finance International Economics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Exchange rate
interest rate
bivariate VAR-GARCH model
causation in volatilities
Asian Studies
Finance
International Economics
spellingShingle Exchange rate
interest rate
bivariate VAR-GARCH model
causation in volatilities
Asian Studies
Finance
International Economics
Chow, Hwee Kwan
KIM, Yoonbai
The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia
description In post-crisis Asia, all crisis-hit countries (except Malaysia) announced a shift from exchange rate based monetary policy framework to the explicit adoption of inflation targeting that uses interest rates as the key monetary policy operating instrument. In this study, we examine the empirical relationship between exchange rates and interest rates, and investigate how the dynamics between them have changed following the crisis. This is carried out by constructing a bivariate VAR-GARCH model for each of the four Asian crisis countries, namely Indonesia, Korea, Philippines and Thailand. The findings suggest these countries do not use interest rate policy more actively to stabilize exchange rates after the crisis, and provide evidence that their domestic currencies exhibit greater sensitivity to competitors’ exchange rates post-crisis. Further, the results indicate that increased exchange rate flexibility has not led to greater stability in interest rates in these economies.
format text
author Chow, Hwee Kwan
KIM, Yoonbai
author_facet Chow, Hwee Kwan
KIM, Yoonbai
author_sort Chow, Hwee Kwan
title The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia
title_short The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia
title_full The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia
title_fullStr The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia
title_full_unstemmed The Empirical Relationship between Exchange Rates and Interest Rates in Post-Crisis Asia
title_sort empirical relationship between exchange rates and interest rates in post-crisis asia
publisher Institutional Knowledge at Singapore Management University
publishDate 2004
url https://ink.library.smu.edu.sg/soe_research/785
https://ink.library.smu.edu.sg/context/soe_research/article/1784/viewcontent/HweeKwanCHOW.pdf
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