Chapter

Interest Rates and Exchange Rates in the Korean, Philippine, and Thai Exchange Rate Crises

Edited by Dongchul Cho and Kenneth D. West

in Managing Currency Crises in Emerging Markets

Published by University of Chicago Press

Published in print February 2003 | ISBN: 9780226155401
Published online February 2013 | e-ISBN: 9780226155425 | DOI: http://dx.doi.org/10.7208/chicago/9780226155425.003.0003
Interest Rates and Exchange Rates in the Korean, Philippine, and Thai Exchange Rate Crises

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This chapter examines the relationship between exchange rates and interest rates during the 1997–98 exchange rate crises in Korea, the Philippines and Thailand. It aims to determine whether exogenous monetary-policy-induced increases in the interest rate in these economies cause exchange rate depreciation or appreciation. This chapter proposes a two-equation model for exchange rates and interest rates which include a monetary policy reaction function and an interest parity equation. It explains that increases in interest rates following crises led to exchange rate appreciation in Korea and the Philippines but to depreciation in Thailand.

Keywords: exchange rates; interest rates; exchange rate crises; Korea; Philippines; Thailand; monetary policy reaction function; interest parity equation

Chapter.  10136 words.  Illustrated.

Subjects: International Economics

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