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    Financial Crisis and Recovery: Patterns of Adjustment in East Asia, 1996-99

    Park, Yung Chul; Lee, Jong Wha | October 2002
    Abstract
    This paper analyzes the macroeconomic adjustment from the crisis in East Asia in a broad international perspective. The stylized pattern from the previous 160 currency crisis episodes over the period from 1970 to 1995 shows a V-type adjustment of real GDP growth in the years prior to and following a crisis. The adjustment shows a much sharper V-type in the crisis episodes with the IMF program, compared to those without. Cross-country regressions show that depreciation of real exchange rate, expansionary macroeconomic policies and favorable global environments are critical for the speedy post-crisis recovery. In this sense, the East Asian process of adjustment is not much different from the stylized pattern from the previous currency crisis episodes. However, the degree of initial contraction and following recovery has been far greater in East Asia than what the cross-country evidence predicts. This paper argues that the sharper adjustment pattern in East Asia is attributable to the severe liquidity crisis that was triggered by investor panic and then amplified by weak corporate and bank balance sheets. We find no evidence for a direct impact of a currency crisis on long-run growth. Korea has stood out as a better performer than the other crisis countries in managing recovery largely because it has been relatively more successful in restoring the soundness and stability of its financial system.
    Citation
    Park, Yung Chul; Lee, Jong Wha. 2002. Financial Crisis and Recovery: Patterns of Adjustment in East Asia, 1996-99. © Asian Development Bank Institute. http://hdl.handle.net/11540/4150. License: CC BY 3.0 IGO.
    Keywords
    Macroeconomic
    Macroeconomic Analysis
    Macroeconomic Framework
    Macroeconomic Models
    Macroeconomic Performance
    Macroeconomic Planning
    Macroeconomic Policies
    Macroeconomic Reform
    Macroeconomic Stabilization
    Social condition
    Economic dependence
    Economic assistance
    International monetary relations
    International monetary relations
    International trade
    National accounting
    Market
    Exchange
    Comparative economics
    Index number
    Monetary policy
    Value analysis
    Adjustment cost
    Transaction cost
    Conditionality
    International relations
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    Citable URI
    http://hdl.handle.net/11540/4150
    Metadata
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    2002.10.rp45.asian.crisis.recovery.pdf (803.8Kb)
    Author
    Park, Yung Chul
    Lee, Jong Wha
    Theme
    Economics
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise