Did the Malaysian Capital Controls Work?

Edited by Ethan Kaplan and Dani Rodrik

in Preventing Currency Crises in Emerging Markets

Published by University of Chicago Press

Published in print November 2002 | ISBN: 9780226184944
Published online February 2013 | e-ISBN: 9780226185057 | DOI:
Did the Malaysian Capital Controls Work?

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This chapter presents a detailed empirical evaluation of Malaysia's unorthodox reaction to the currency upheaval of 1997–98. The Malaysian controls produced better results than the alternative in almost all dimensions. Financial market indicators indicate that pressure on the Malaysian currency remained high in Malaysia months after the Korean and Thai currencies had begun to appreciate. Malaysia was not faced with a serious economic crisis of the type faced by the other countries. The conventional counterfactual states that the intense offshore speculation against the ringgit was about to stop of its own accord, that the Malaysian economy was about to turn the corner even without any fundamental change in policies, or that an IMF-style program would have produced an immediate recovery for Malaysia. The effectiveness of capital controls could at best be only temporary and that it depended on initial conditions (the degree of economic and financial imbalances).

Keywords: Malaysia; unorthodox reaction; Malaysian controls; financial market; Malaysian currency; economic crisis; Malaysian economy; capital controls

Chapter.  16940 words.  Illustrated.

Subjects: International Economics

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