IMF Working Papers

Were Bid-Ask Spreads in the Foreign Exchange Market Excessive During the Asian Crisis?

By Torbjorn I. Becker, Amadou N Sy

February 1, 2005

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Torbjorn I. Becker, and Amadou N Sy. Were Bid-Ask Spreads in the Foreign Exchange Market Excessive During the Asian Crisis?, (USA: International Monetary Fund, 2005) accessed October 8, 2024
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

Bid-ask spreads for Asian emerging market currencies increased sharply during the Asian crisis. A key question is whether such wide spreads were excessive or explained by models of bid-ask spreads. Precrisis estimates of standard models show that spreads during the crisis were in most cases tighter than spreads predicted by the models and there are few cases of excessive spreads. The result is largely explained by the substantial increase in exchange rate volatility during the crisis and to some extent by the level change. The empirical models have greater explanatory power for emerging- than for mature-market currencies.

Subject: Currencies, Currency markets, Emerging and frontier financial markets, Exchange rate risk, Exchange rates

Keywords: Hong Kong dollar, Philippine peso, Thai baht, WP

Publication Details

  • Pages:

    31

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2005/034

  • Stock No:

    WPIEA2005034

  • ISBN:

    9781451860535

  • ISSN:

    1018-5941