Financial Liberalization and the Information Content of Money in Indonesia, Korea, and the Philippines
November 1, 1993
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Summary
Using a VAR approach, this paper studies the relationship between money, output, and prices in a group of Pacific Basin countries that underwent financial sector reform during the 1980s: Indonesia, Korea, and the Philippines. Special attention is paid to assessing the information content of money. Money was found to contain valuable advance information on output and prices in Korea, on prices only in the Philippines, and did not contain any advance information in Indonesia. The introduction of financial sector reform was not found to lead to a structural break in the price and output equations; however, the information content of money was affected. Further tests show that exchange and interest rates—variables that gained flexibility with the reforms—contain valuable information about future developments in prices in Korea and the Philippines.
Subject: Currencies, Exchange rates, Financial regulation and supervision, Financial sector reform, Foreign exchange, Monetary aggregates, Monetary base, Money
Keywords: Currencies, equation, equations in Korea, Exchange rates, Financial sector reform, M2, Monetary aggregates, Monetary base, money variable, money-output-price relationship, output equation, Philippines money, price, price equation, WP
Pages:
44
Volume:
1993
DOI:
Issue:
088
Series:
Working Paper No. 1993/088
Stock No:
WPIEA0881993
ISBN:
9781451851083
ISSN:
1018-5941
