Economic Shocks and Exchange Rate as a Shock Absorber in Indonesia and Thailand

Goo, Siwei and Siregar, Reza Y. Siregar (2009): Economic Shocks and Exchange Rate as a Shock Absorber in Indonesia and Thailand. Unpublished.

Abstract

This study investigates the requirement for the exchange rate to be a shock absorber in Indonesia and Thailand from 1986 to 2007. In general, we find that the economic shocks have predominantly been asymmetric relative to the US and the Japanese economies. Yet, the weights attached to the US dollar remain respectably high in the exchange rate management of the rupiah and the baht, in particular for the latter currency, during the post-1997 crisis. Hence, relinquishing the role of exchange rate as a shock absorber has been costly during both the pre-and the post-1997 crisis periods for these Southeast Asian countries. Furthermore, it is arguably more costly for Thailand during the post-1997, and for Indonesia during the pre-1997 crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Shocks; Shock Absorber; Exchange Rate; Structural Vector Autoregression; Indonesia; Thailand
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects); C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C22 - Time-Series Models; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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