Contagion, Monsoons, and Domestic Turmoil in Indonesia : A Case Study in the Asian Currency Crisis

Author/Editor:

Sweta Chaman Saxena ; Valerie Cerra

Publication Date:

March 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates whether Indonesia’s recent currency crisis was due to domestic fundamentals, common external shocks (“monsoons”), or contagion from neighboring countries. Markov-switching models attribute speculative pressure on Indonesia’s currency to domestic political and financial factors and contagion from speculative pressures in Thailand and Korea. In particular, the results from a time-varying transition probability Markov-switching model (which overcomes some drawbacks of previous methods) show that inclusion of exchange rate pressures from Thailand and Korea in the transition probabilities improves the conditional probabilities of crisis in Indonesia. There is also evidence of contagion in the stock market.

Series:

Working Paper No. 00/60

Subject:

English

Publication Date:

March 1, 2000

ISBN/ISSN:

9781451848045/1018-5941

Stock No:

WPIEA0602000

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

26

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