Sudden stop and trade balance reversal after Asian crisis: Investment drought impact versus exchange rate depreciation

Shugo Yamamoto

Journal of Policy Modeling, 2013, vol. 35, issue 5, 750-765

Abstract: After the Asian crisis in 1997, the respective trade balances of Indonesia, Korea, Malaysia, and Thailand reversed suddenly from deficit to surplus. By particularly addressing the sudden cessation of investment caused by the financial crisis, it is demonstrated that the IS balance adjustment dominates real exchange rate depreciation, indicating that to reform the large external imbalance of Asian countries, which is a major component of global imbalance, policymakers should target domestic absorption. Furthermore, it can be demonstrated that the large trade balance surplus of Asian countries will decrease along with recovery. Finally, policy implications related to the recent Euro crisis are provided.

Keywords: IS balance adjustment; Financial crisis; Financial accelerator; Sign restriction VAR (search for similar items in EconPapers)
JEL-codes: F3 F31 F32 F44 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:35:y:2013:i:5:p:750-765

DOI: 10.1016/j.jpolmod.2013.04.002

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