Economic structures, the nature of shocks and the role of exchange rate in the monetary policy formation in the emerging countries of East-Asia
This thesis investigates the role of exchange rate in a small open economy policy framework. Focusing the analysis on the crisis-hit East-Asian countries, the main objective of this thesis is to investigate the necessity of the monetary authority to concern about the exchange rate stability by reacting directly to the exchange rate movements under the flexible exchange rate regime. This thesis conducts both numerical simulations and empirical analyses and it is organized in six chapters. Chapter One is the introduction about the content of each chapter and the summary of the main findings. Chapter Two is the overview about the economic and monetary policy of East-Asian countries. Chapter Four applies a model of Lindé, Nessén & Söderström (2004) and conducts simulations to compare the performances of various policy rules in terms of policy loss and variations. The remaining chapters are about the empirical analyses, i.e. Chapter Three applies GMM technique and SUR model to estimate the degree of exchange rate pass-through in East-Asia in the pre- and post-crisis of 1997/98, Chapter Five applies GMM technique to estimate the policy reaction function for East-Asia and the last chapter conducts a SVAR model to investigate the change in the economic structure, the dynamic of shocks and the performances of the policy regimes in East-Asian countries. The simulations reveal some evidences on more effective monetary policy rules/ regimes that react directly to the exchange rate terms, taking into account for different degrees of exchange rate pass-through, trade openness, policy objective, the source and persistency of shocks. However, the size of improvements depends on country specific factors. Empirical results report different results for the degree of exchange rate pass-through along the pricing chain, over time and across countries. Besides, there are empirical evidences that the monetary authorities in East-Asian countries influence the exchange rate movements through short-term interest rate adjustments and foreign market intervention under the floating regime aftermath the crisis. Empirical findings indicate that the policy regimes aftermath the crisis is more effective. The source of shocks and the change in the economic structure matters in determining the performances of policy regimes. The empirical results are in line with the theoretical outcomes that favor the reaction to the exchange rate movements under the flexible exchange rate regime in the emerging countries of East-Asia.
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