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The Dynamics of Fundamentals in Currency Crisis in Indonesia and Malaysia

Lim, Guan Choo (2006) The Dynamics of Fundamentals in Currency Crisis in Indonesia and Malaysia. Jurnal Teknologi E (45E). pp. 63-82. ISSN 0127-9696

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Abstract

The impact of selected macroeconomic fundamentals on the market pressure (MP) is assessed using the third generation models based on ‘Dusenberry’ adaptive expectations. The findings are consistent with the general belief that weak macroeconomic fundamentals had triggered the speculative attacks against the Asian currencies. However, the macroeconomic variables and their dynamics that set the groundwork for a currency crisis differ considerably in Malaysia and Indonesia. A speculative attack against the Rupiah occurred in a generalized state of macroeconomic weakness while domestic credit growth, the fiscal balances-GDP ratio and the real exchange rate exerted strong influence on the exchange market pressure for Malaysia. In conclusion, while there are some common fundamentals matter for shifting market expectations and hence, market pressure in both countries, the dynamics that formed market expectations are divergent. Therefore, the belief that the Asian economies had the same characteristics that triggered the currency crisis in 1997 may be incorrect.

Item Type:Article
Uncontrolled Keywords:currency crisis; Indonesia; Malaysia; fundamentals
Subjects:H Social Sciences > HB Economic Theory
Divisions:Management and Human Resource Development (Formerly known)
ID Code:4261
Deposited By: Pn Norhayati Abu Ruddin
Deposited On:10 Sep 2007 00:15
Last Modified:28 Oct 2010 04:54

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