Asian Currency Crisis Research Articles

Regional Currency Settlements in East Asia: Risks and Tasks for Korea

East Asian Countries has developed the financial cooperation via CMIM, ABMI after the Asian currency crisis. Lee and Park (2014) and Rhee and Sumulong (2014) advocate the use of local currencies in trade settlements. The regional currency settlements will reduce the USD dependancy in the regional economy, so it will promote financial stability in the region. But they might induce risks for Korean economy. Korea’s trade accounts are deficit with Middle East and Japan and surplus with other regions. Most USD settled trade surplus comes from trades with China and ASEAN. Therefore, if the regional currency settlement increases in East Asia, then USD settled surplus would be shrunk considerably since the trade deficit with Middle East still would be settled in USD. The increased interconnection of regional economy may speed up the spread of financial crisis if it happens in the region. And it is possible that currencies in East Asia are valued as a bloc regardless of Korean macroeconomy conditions. Traders may choose only Yuan for their settlement when the regional currency settlement is promoted since China promoted Yuan internationalization. The convertibility of local currencies should be guaranteed to avoid any problem caused by USD surplus reduction problem. The crisis prevention effort should be strengthened and local currencies’ FX hedging tools should be provided to traders. We should make KRW more acceptable in the region in order to minimize potential risks associated with increased local currency settlements.

Sudden Changes In Volatility In European Stock Markets

This paper studiesthe volatility in ten Europeanstock markets (Denmark, France, Germany, Ireland, Italy, Netherland, Spain, Sweden,Switzerland and United Kingdom) during the periods of financial crisis (East Asian currency crisis, Subprime crisis) from 1990 to 2012. We apply Markov Regime Switching SW-GARCHmodel. Our results show that mostof the European stock markets are closely interlinked to the U.S.

The Determinants of Future Bank Stock Returns in Eight Asian Countries

(ProQuest: ... denotes formulae omitted.)I. IntroductionCross-sectional asset pricing studies often treat financial institutions as outliers as they have higher leverage and are subject to a higher level of industry regulation than other sectors.1 Thus, information sources of the cross-sectional differences in future bank stock returns have not been explored much. For example, the popular three factor model by Fama and French (1992, 1993) demonstrates that the market risk, firm size, and book-to-market (BM) ratio explain the cross-sectional variation of stock returns. However, previous literature focusing on banking sector shows inconsistent results. Bessler et al. (2008) find that firm size and BM ratio are significant factors in future bank stock returns, while Cooper et al. (2003) show the opposite result.2 Moreover, when focusing on banking sector, exploring the link between bank-specific fundamental variables and the cross-section of expected bank stock returns was the main subject in the previous studies because bank-specific fundamental variables such as their ratios of net loans to total assets, equity to total assets, and non-performing loans to total assets show the bank capital and income structures. However, the previous studies reached no consensus on empirical methodology and results using these variables.3In particular, studies on emerging markets bank stock returns have been few. Most of the studies conducted before the 1990s focused on the relationship between debt crises and bank stock returns.4 In a more recent paper, Girard et al. (2010) analyze the impacts of both fundamental factors and country risk factors on bank stock returns in emerging markets. But they do not consider Asian banks' special characteristics and recent changes made around the Global Financial Crisis period. First, compared to advanced countries' banks, Asian banks have unique characteristics: they are highly dependent on domestic market; their major income source is interest income; and they are vulnerable to external shocks (Mohanty and Turner, 2010). Second, the Global Financial Crisis quickly spread to the world through increased interconnectedness in banking sector, especially, between European banks and the U.S. banks. Initially, the impacts of the negative shock from the crisis were relatively weak in Asian banks, which were not as integrated with the United States as European ones. However, as Rosengren (2012) pointed out in his speech, the correlation with the U.S. and European bank stock returns has increased overtime and Asian banks have certainly been impacted by the global slowdown since the crisis as Asian banks are in the transition to being integrated to the global financial markets. Their characteristics and increased correlation with the global market require that Asian banks be studied separately from banks in developed countries such as the United States and European countries.Asian banks also have another distinct characteristic compared to other emerging market banks. Mohanty and Turner (2010) evaluate that Asian banks not only have lower external exposures but also become better capitalized and more effective in managing their credit risks following the 1997 Asian currency crisis. With the help of favorable macroeconomic conditions, the structures of Asian banking assets and income statements have changed significantly over the past decade. The quality of assets held by banks has improved as the banks started to hold more cross-border claims, prompting their shares of liquid assets to grow rapidly. All these improvements in bank-specific fundamentals surely have impacts on the link with future bank stock returns.In this regard, this study examines the relationship between the cross-section of future bank stock returns and general asset pricing factors as well as bank-specific fundamental factors for a sample of eight Asian countries5 during the period from January 2000 to December 2010. …

Financial time series analysis based on information categorization method

The paper mainly applies the information categorization method to analyze the financial time series. The method is used to examine the similarity of different sequences by calculating the distances between them. We apply this method to quantify the similarity of different stock markets. And we report the results of similarity in US and Chinese stock markets in periods 1991–1998 (before the Asian currency crisis), 1999–2006 (after the Asian currency crisis and before the global financial crisis), and 2007–2013 (during and after global financial crisis) by using this method. The results show the difference of similarity between different stock markets in different time periods and the similarity of the two stock markets become larger after these two crises. Also we acquire the results of similarity of 10 stock indices in three areas; it means the method can distinguish different areas’ markets from the phylogenetic trees. The results show that we can get satisfactory information from financial markets by this method. The information categorization method can not only be used in physiologic time series, but also in financial time series.

Reflection of IT Industry in the Real Exchange Rate

Motivated by looking what would have been possible if Korea had pegged the Won to the price of her key export commodity, semiconductor, the relation between the real exchange rate and the DRAM real price is of great empirical interest in this paper. Naturally, not all the time over the period from 1991 to 2002, Korea will benefit from a peg to her export commodity price. Nonetheless, on the brink of the Asian currency crisis, peg to key export commodity price would help to recover the current account deficit and capital market sentiments when the decline of major export commodity price was combined with the strong U.S. dollar. Encouraged by these facts, this paper scrutinizes how much the real price of the DRAM, the greatest export item in Korea, has affected her real exchange rate through regressions and the VAR study. The DRAM real price shock is more responsible for driving the real exchange rate than the terms of trade shock.

Studying Crises Through Structural Breaks: A Retrospective on Asian Currency Crises

The present financial crisis gives us an opportunity to think in retrospect about crisis. The objective of this paper is to identify and analyze various indicators of crisis, which were affected by the crises in East Asia with a more scientific and systematic approach through studying structural breaks, before, during and after crisis. Dummy variables were used for both A5 countries and India. The variables do not show the same trend in case of all the crises hit countries. In India none of the variables showed structural break, as it was a non-crisis hit country. The merit of the paper lies in capturing crisis through structural breaks even in the short run through annual data.

Studying Crisis through Structural Breaks: A Retrospective on Asian Currency Crisis

The financial crises that have happened during the past few years give us an opportunity to think in retrospect about crisis. The objective of this paper is to identify and analyse various indicators which were affected by the East Asia crisis. The methodology employed is more scientific and systematic and studies structural breaks, before, during and after the crisis. Dummy variables have been used for both A5 countries and India which enabled inter-temporal and international comparisons of crisis variables. The variables do not show the same trend in case of all the crisis-hit countries. In India, none of the variables show structural break indicating that India was not hit by the crisis.

Long Memory Features Evolve in the Time-varying Process in Asia-pacific Foreign Exchange Markets

We investigated the presence of, and changes in, long memory features in the returns and volatility dynamics of six Asia-Pacific foreign exchange markets (Australian dollar, Japanese yen, Korean won, New Zealand dollar, Singaporean dollar, and Taiwan dollar) using time-varying Hurst exponents. In particular, instead of relying on a single static measure of long memory, we explored time-varying long memory features over time to assess changes in market efficiency by analyzing the returns and volatility of the markets. Furthermore, considering a time-varying rolling approach, we estimated values of the Hurst exponent for time windows with 1,000 observations (about 4 years of data) in each window. The estimation results indicated that both the returns and the volatility series possessed strong long memory features and that the degree of the long memory features changed over time. Additionally, the Hurst exponent showed an upward trend during the 1997 Asian currency crisis and 2008 global financial crisis, indicating that exchange rate markets became inefficient and predictable during the financial crisis.

Could Inward FDI Offset the Substitution Effect of Outward FDI on Domestic Investment? Evidence from Malaysia

It is well documented in the literature that Malaysia has become an emerging source of outward foreign direct investment (OFDI) in the region. The drastic increase in its OFDI has raised concerns as to whether the outbound direct investment activities from the country would detract from domestic investment activities, which have been sluggish since the aftermath of the Asian Currency Crisis. Using the autoregressive distrusted lag (ARDL) modelling approach to cointegration, the findings show that there is a long-run equilibrium relationship involving the four variables, i.e. between domestic investment and its determinants such as FDI outflows, FDI inflows and domestic savings. Moreover, this study reveals that the effect on domestic investment by FDI outflows is substitutional and inelastic, while that by FDI inflows is complementary and elastic, implying that the latter can overcome the substitution effect caused by the former if the Malaysian government could formulate pragmatic policies in attracting FDI inflows.

Analysis on Credit Rate Upgrade of Korea after Asian Currency Crisis

Analysis on Credit Rate Upgrade of Korea after Asian Currency Crisis

Volatility Spillovers Among the U.S. and Asian Stock Markets: A Comparison between the Periods of Asian Currency Crisis and Subprime Credit Crisis

This paper examines the changing nature of volatility spillovers among the U.S. and eight East Asian stock markets between two financial crises: the Asian currency crisis and the U.S. subprime credit crisis. Our empirical results suggest that volatility is not always spilled over from directly affected markets to surrounding markets in crisis periods. The East Asian markets who directly suffered from the Asian currency crisis are the ones to which volatility is spilled over from other markets during the Asian currency crisis period, whereas unidirectional volatility spillovers from the U.S. market to other markets are observed during both crisis periods. This difference can be explained by a predetermined hierarchy in which volatility spillovers tend to start from the U.S. market regardless of the geographical origin of the crisis. Furthermore, our results reveal that the markets in three major Asian financial hubs, i.e., Japan, Hong Kong and Singapore, are the markets to which volatility is spilled over unidirectionally from several other countries during the subprime credit crisis period, whereas it is not true during the Asian currency crisis period. We attribute this difference to crisis-specific (currency or credit crisis), market-specific (credit derivatives market participation and foreign currency reserves), and time-specific (more integrated global market) factor.

The Role of Asia in a Globalized Era

This article first reviews the past 25 years, during which the international political situation as well as international economics and finance underwent major structural changes. It then focuses on Asia, which has recorded remarkable growth and strengthened its financial architecture since the Asian currency crisis. Issues facing Asia are detailed, together with recommendations for Asia's participation in a new international economic order.

Regional Business Cycles in East Asia: Synchronization and its Determinants

I. IntroductionEconomic integration in East Asia has progressed with the aid of increasing international trade and financial flows. The size of ASEAN+31 economy has been taking an ever-greater share of the world economy, as shown in Table 1. China has emerged as a major economic partner of both East Asian countries and the rest of the world. This tendency of increasing economic integration is likely to lead regional business cycle synchronization in East Asia.Trade integration in East Asia has actively proceeded over the last two decades through the ASEAN Free Trade Area and the ASEAN Investment Area. These efforts contributed to lowering transaction costs of regional trade. Moreover, strong tendency of regional trade integration is supported by bilateral and plurilateral free trade agreements. For example, ASEAN+3 countries have concluded 131 FTAs and are currently negotiating 53 FTAs, as of 2012.Regional financial cooperation has been developed in East Asia under the ASEAN+3 initiatives since the Asian currency crisis. It has manifested in various aspects, including gradual financial liberalization, increasing cross-border capital flows, establishing regional financial safety nets, and developing local currency bond markets.2 The issue of regional business cycle synchronization is also relevant to the regional monetary cooperation in East Asia. This is, in particular, important for the optimum currency area because the degree of regional business cycle synchronization is understood as one of the economic convergence criteria. In this regard, recent studies have examined the business cycle comovement between countries in Asia in order to assess the desirability of a regional currency union.Empirical literature provides a general tendency of regional business cycle synchronization in East Asia. Selover (1999) uses principal component analysis to find evidence for a shared business cycle among ASEAN countries. However VAR estimations reveal weak evidence of business cycle transmission among ASEAN countries. Selover (2004) examines the economic links between Korea and Japan and finds evidence of moderate synchronization in economic activity. Rana (2007) extends Shin and Wang (2003) to find that intra-industry trade is the major factor explaining business cycle comovement in East Asia.For emerging and developing economies as in Calderon et al. (2007), the empirical evidence of business cycle synchronization appears to be more negligible with mixed results. Moneta and Ruffer (2009) examine business cycle synchronization in East Asia by estimating a factor model through Kalman filtering. Their finding is that Asian countries, except China and Japan, share a common factor of business cycle that appears to reflect export synchronization. The existing studies generally find a positive relationship between trade linkages and synchronization for the Asian region, in line with the relatively high share of intra-industry trade within the region (e.g. Choe, 2001; Shin and Sohn, 2006; and Rana, 2007). In contrast, Kumakura (2006) finds that similarities in the production structure are much more important explanatory variable for bilateral growth synchronization than bilateral trade links. Imbs (2011) examines bilateral business cycle correlations within emerging East Asia. He finds evident business cycle synchronization after the global financial crisis of 2008:Q3, but it is substantially more pronounced amongst developed countries than in emerging East Asia. Nguyen (2007) investigates the determinants of East Asian business cycle synchronization, covering the period 1970-2000, by using an OLS-based extreme bound analysis, and finds that trade openness, intra-industry trade, and the similarity of monetary policy are major channels of business cycle synchronization. Allegret and Essaadi (2011) analyze the feasibility of a monetary union in East Asia focusing on business cycles synchronization. They find that the increase in bilateral trade in East Asia improves long-run business cycle synchronization. …

Network analysis of exchange data: interdependence drives crisis contagion

In this paper, we examine linear and nonlinear co-movements that appear in the real exchange rates of a group of 28 developed and developing countries. The matrix of Pearson correlation and Phase Synchronous coefficients have been used in order to construct a topology and hierarchy of countries by using the Minimum Spanning Tree (MST). In addition, the MST cost and global correlation coefficients have been calculated to observe the co-movements’ dynamics throughout the time sample. By comparing Pearson and Phase Synchronous information, a new methodology is emphasized; one that can uncover meaningful information pertaining to the contagion economic issue and, more generally, the debate surrounding interdependence and/or contagion in financial time series. Our results suggest some evidence of contagion in the Asian currency crises; however, this contagion is driven by previous and stable interdependence.

Entropy-Based Analysis and Bioinformatics-Inspired Integration of Global Economic Information Transfer

The assessment of information transfer in the global economic network helps to understand the current environment and the outlook of an economy. Most approaches on global networks extract information transfer based mainly on a single variable. This paper establishes an entirely new bioinformatics-inspired approach to integrating information transfer derived from multiple variables and develops an international economic network accordingly. In the proposed methodology, we first construct the transfer entropies (TEs) between various intra- and inter-country pairs of economic time series variables, test their significances, and then use a weighted sum approach to aggregate information captured in each TE. Through a simulation study, the new method is shown to deliver better information integration compared to existing integration methods in that it can be applied even when intra-country variables are correlated. Empirical investigation with the real world data reveals that Western countries are more influential in the global economic network and that Japan has become less influential following the Asian currency crisis.

債権国主導による世界経済ガヴァナンス改革

Since the inception of floating exchange rates among the major countries at the beginning of 1970s, the frequency of occurrence in economic crisis has increased tremendously. That is why the world economy has been conducted by the debtor’s logic not by the creditor’s one, in addition to fundamental unstableness of the world economy by the large swings of the exchange rates. Under the fixed exchange rate regime, the strong balance of payments discipline is imposed on the deficit countries (debtors) . In this sense fixed exchange rate regime is the system conducted by the creditor’s logic. On the other hand, floating exchange rates is the system conducted by the debtor’s logic. This system could never work well. If we look at the European sovereign debt crisis in Greece and Portugal, the root cause is each country’s balance of payments problem although it appears fiscal problem on the surface. They continued huge current account deficits of around 10 % of their GDP for more than 10 years, because their balance of payments discipline was completely disappeared since the introduction the euro. This is more than outrageous. This could make possible for them to keep huge fiscal deficit which is a part of current account of balance of payments. Moreover, the two countries disguised their fiscal balance statistics for many years. After all, balance of payments on current account is one of the most important macro-economic indicators under any currency system including even floating exchange rates. This should be clearly recognized in all countries in the world. Credit rating agencies like Standard & Poor’s and Moody’s repeatedly made mistakes in every major crisis, such as Asian Currency Crisis in 1997, Enron Corp. collapse in 2001, Worldcom collapse in 2002, and US Sub-prime Housing Loan Crisis in 2007. This is due to the system based on issuer-pays model or debtor-pays model which brings conflict of interest. Thus the current world economic system is basically constructed by the debtor’s logic. That is the fundamental reason why we would encounter economic and financial crises very frequently. And, we should pay attention to the fact that the United States and the United Kingdom obviously had much more banking crises than other major countries for the past 200 years. Economies conducted by freemarketeers’ mantra are prone to face economic crises. The solution to the world economy is that countries should follow the Germano-Japanese economic model rather than the Anglo-Saxon model. In other words, we should re-construct the world economic system conducted by the creditor’s logic. Japan has been the largest net external creditor for 22 years since 1991, and Germany is the third largest net external creditor only after China.

The Rise of Korea's Credit Ratings after the Asian Currency Crisis: A Panel Analysis of Determinants

The fluctuations of credit ratings can make a considerable impact on a nation's finance and economy. Moody's 9-notch downgrading of the Korea's credit rating from A1 to B- during the 1997 Asian currency crisis led to a rise in foreign currency loans' cost, and this placed a heavy burden on the overall macroeconomy. When the credit rate is downgraded, the demand for that country's bonds is generally decreased as the risk premium for them increases. This in turn causes costs for government debt to rise, thus presenting difficulties for the stable management of national finance.

Are reserve holdings in emerging Asian countries excessive? - The intertemporal balance perspective

Under the assumption of intertemporal balance, current foreign reserve holdings should equal the present value of the sum of future current account and financial account balances. To satisfy the intertemporal balance, a testable condition indicates that the change in foreign reserves needs to follow a stationary path. We employ variant unit root tests on nine Asian emerging markets for the time period of 1989.1 to 2008.12. The univariate unit root test shows that most countries have violated the intertemporal balance due to accumulating excessive reserves, while for the time period up to 1997.6, prior to the Asian currency crises, most countries deviated from the sustainable path due to deficient reserve holdings. However, results from the panel unit root test, which particularly considers the cross country correlation, show that except for China not being on a sustainable path, the other countries do not violate the intertemporal balance. The disparate results between univariate and panel unit root tests indicate interdependence among Asian emerging markets in the era of financial globalisation and vindicate the advantages from regional financial cooperation.

Cross-sample entropy statistic as a measure of synchronism and cross-correlation of stock markets

In this paper, we employ cross-sample entropy (cross-SampEn), transfer entropy, and detrended cross-correlation analysis (DCCA) measurement to investigate the relationship between time series among different stock markets. Cross-SampEn method is used to compare the returns of every two stock index time series to assess their degree of asynchrony. Transfer entropy is applied to measure the information flow between two financial time series and this model-free approach in principle allows us to detect statistical dependencies of all types. We use DCCA method to quantify the cross-correlations of two non-stationary time series. We report the results of synchronism and cross-correlation behaviors in US and Chinese stock markets in periods 1991–1998 (before the Asian currency crisis) and 1999–2008 (after the Asian currency crises) by using cross-SampEn, transfer entropy and DCCA methods, respectively. The results, through the contrast description of the three methods, show that the synchronism and cross-correlation become higher after the Asian currency crises, especially for the three Chinese stock index time series. Among all these consequences, ShangZheng and ShenCheng show the strongest synchronism, information transfer and cross-correlation. While the three US stock markets show a good cross-correlation and information transfer, but less synchronism before the Asian currency crisis.

The US tech pulse, stock prices, and exchange rate dynamics: Evidence from Asian developing countries

This paper empirically investigates the economic relationship between the US and Asian economies after the Asian currency crisis in Indonesia, Korea, the Philippines, Singapore, and Thailand, employing a cointegration methodology. Based on the empirical results, we conclude that the interdependence between the US and these Asian economies has intensified especially in information technology industries, and that their stock markets are integrated. On the other hand, the relationship between the domestic stock and foreign exchange markets is found to have a negative sign, interpreted by portfolio balance approach, in Indonesia, Korea, and Thailand. This result implies that the exchange rates of these countries are relatively vulnerable to fluctuation in international portfolio investments.