The authors thank Frank Denton, Alok Johri, Paul Lau, Lonnie Magee, Nelson Mark and the seminar participants at McMaster University, City University of Hong Kong, University of Hong Kong, University of Macau, and Lingnan University for comments on earlier drafts.
The 1997 Asian Currency Crisis, Financial Linkages, and the Monetary Policy of Japan
Version of Record online: 16 JAN 2012
© 2012 Blackwell Publishing Ltd
Review of International Economics
Volume 20, Issue 1, pages 1–17, February 2012
How to Cite
Chan, K. S. and Dang, V. Q.T. (2012), The 1997 Asian Currency Crisis, Financial Linkages, and the Monetary Policy of Japan. Review of International Economics, 20: 1–17. doi: 10.1111/j.1467-9396.2011.01003.x
- Issue online: 16 JAN 2012
- Version of Record online: 16 JAN 2012
The evidence is examined that excessively liberal monetary policy by the Bank of Japan, before and after the financial collapse of Japan in 1992, may have led other East Asian economies into “over-borrowing” and speculative investments, prior to the currency crisis in 1997–98. The authors test for cointegration and Granger causality between Japanese money supply M1 and the domestic investment of eight East Asian economies and Australia. US and German money supplies are also used as a benchmark. There is strong evidence that there are long- and short-run causal relationships between the Japanese money supply and the domestic investment of the Asian crisis-inflicted economies prior to 1997.