Bubbles, Monetary Policy and the Asian Currency Crisis

Raul Fabella

No 199805, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: We propose a life cycle of bubbles (from a quiescent stable state to a bubble to its collapse) where the role of monetary management is crucial. We claim that the policy of liberalizing short-term capital and private foreign borrowing (which is a deflationary expansionary monetary policy with stable (pegged exchange rates) combined to precipitate and deepen the Asean bubbles and create unsustainable short- and unhedged forex exposures.

Date: 1998-05
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Published as UPSE Discussion Paper No. 1998-05, May 1995

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