A dynamic model of export competition, policy coordination and simultaneous currency collapse

Chan Guk Huh and Kenneth Kasa

No 97-08, Pacific Basin Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper offers a game-theoretic interpretation of the recent currency crisis in Asia. Specifically, we argue that the 'price wars during booms' logic of Rotemberg and Saloner (1986) can be used to explain the nearly simultaneous devaluation of several Asian currencies during the summer of 1997. The idea is as follows. Since each of these countries relies heavily on exports to the U.S. pressures for competitive devaluations naturally arise. ; We view the historical tendency of these countries to peg to the dollar as a way to avoid these pressures. However, it must be in the self-interest of each country to adhere to its peg, and we argue that an adverse common external the arrangement requires a collective devaluation that reduces the unilateral incentive to devalue, argue that China's 1994 devaluation can be interpreted as this adverse common shock. The novelty of our interpretation is that it views the recent currency crisis as part of a dynamic strategically cooperative equilibrium, as opposed to a single isolated event.

Keywords: Foreign exchange - Law and legislation; Asia; International trade (search for similar items in EconPapers)
Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Published in Review of International Economics (February, 2001, v. 9, no. 1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: A Dynamic Model of Export Competition, Policy Coordination, and Simultaneous Currency Collapse (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfpb:97-08

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Pacific Basin Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().