The Interest Rate-Exchange Rate Nexus in the Asian Crisis Countries

Atish Ghosh () and Gabriela Basurto

No 2000/019, IMF Working Papers from International Monetary Fund

Abstract: Sharp exchange rate depreciations in the East Asian crisis countries (Indonesia, Korea, and Thailand) raised doubts about the efficacy of increasing interest rates to defend the currency. Using a standard monetary model of exchange rate determination, this paper shows that tighter monetary policy was in fact associated with an appreciation of the exchange rate. Moreover, there is little evidence of higher real interest rates contributing to a widening of the risk premium.

Keywords: WP; exchange rate; exchange rate depreciation; interest rate; Asia currency crisis; exchange rates; interest rates; exchange rate movement; widening risk premium; exchange rate appreciation; exchange rate dynamics; money demand; Return on investment; Real interest rates; Depreciation; Demand for money; East Asia (search for similar items in EconPapers)
Pages: 25
Date: 2000-01-01
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Citations: View citations in EconPapers (20)

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