Does asymmetric information play a role in explaining the Asian currency crisis? Application to Indonesian and Malaysian cases using a two-state Markov Switching model

Emna Trabelsi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims at establishing a relationship between disparity of information and the probability of speculative attack in explaining the Asian crisis. We apply the general framework of Markov-Switching models to the differential of interest rates (DIR), subsequently in Indonesia and Malaysia. We allow dependency of the transition probabilities over the asymmetric information indicators. The Maximum Likelihood estimators results (MLE) are twofold: (1) an increase of information dispersion among speculators leads to a higher probability of a currency crisis (2) there is a significant asymmetric impact of information disparity as measured by difference between fund price and Net Asset Value (NAV) on the transition probability in the case of Indonesia, while the hypothesis is rejected for Malaysia’s case.

Keywords: Speculative attack; Global Games; Asymmetric information; Markov-Switching Models (search for similar items in EconPapers)
JEL-codes: D82 F31 (search for similar items in EconPapers)
Date: 2010-11-12
New Economics Papers: this item is included in nep-mon and nep-sea
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