Monetary and Currency Policy Management in Asia
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Monetary and Currency Policy Management in Asia

Edited by Masahiro Kawai, Peter J. Morgan and Shinji Takagi

This book makes concrete macroeconomic policy recommendations for Asian economies aimed at minimizing the impacts of an economic and financial downturn, and setting the stage for an early return to sustainable growth. The focus is on short-term measures related to the cycle. The three main areas addressed are: monetary policy measures to achieve both macroeconomic and financial stability; exchange rate policy and foreign exchange reserve management, including the potential for regional exchange rate cooperation; and ways to ease the constraints on policy resulting from the so-called ‘impossible trinity’ of fixed exchange rates, open capital accounts and independent monetary policy.
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Chapter 1: Monetary and Currency Policy Issues: An Overview

Shinji Takagi


Shinji Takagi 1.1 INTRODUCTION The global financial crisis severely affected Asia, with the sharpest contraction of output occurring from late 2008 to early 2009. Although the initial impact of the crisis appeared limited, the region was hard hit when the crisis spread to the real sector and caused the volume of world trade to collapse. The hardest hit was Japan, whose real gross domestic product (GDP) growth fell from 2.4 percent per year in 2007 to –1.2 percent in 2008 and further to –5.2 percent in 2009 (Figure 1.1). The region’s other 20.0 2007 2008 2009 15.0 10.0 5.0 0.0 ia a re a C si a s or e na ,C hi ei Th si PR In d ne pa Ko al ay ne ap do Ja pi ilip ai la nd n Ph Si –10.0 Note: PRC = People’s Republic of China. Source: IMF, World Economic Outlook database, October 2010, available at Figure 1.1 GDP growth in selected Asian economies (% per year) 1 M2840 - KAWAI 9780857933348 PRINT.indd 1 Ta ip –5.0 In M ng 24/01/2012 13:18 2 Monetary and currency policy management in Asia exporters of manufactured goods were adversely affected in early 2009, but they pulled themselves out of severe economic contraction by mid2009. For the year as a whole, real GDP declined only moderately in these countries (for example, 21.7 percent for Malaysia; 21.3 percent for Singapore); the Republic of Korea (henceforth Korea) even managed to escape negative economic growth for the...

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