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 8: Asia’s Post-global Financial Crisis Adjustment: A Model-based Dynamic Analysis

Masahiro Kawai and Fan Zhai


* Masahiro Kawai and Fan Zhai 8.1 INTRODUCTION Since the outbreak of the global financial crisis in the United States (US) in the third quarter of 2008, Asian economies have experienced substantial growth swings. In the initial stages of the crisis, as global aggregate demand dropped due to falling consumer and investor confidence, exports from all major East Asian economies declined sharply. Imports from these economies also plummeted at almost similar rates to those of export declines, reflecting the tightly knit regional production networks and supply chains in Asia. Given the high trade dependence in most Asian economies, the slump in trade significantly dragged down their economic growth in the fourth quarter of 2008 and the first quarter of 2009. But the East Asian economies rebounded strongly beginning in the second quarter of 2009. The extraordinarily massive economic stimulus packages provided by governments and central banks in major advanced and emerging economies – including those in Asia – in response to the crisis helped to stabilize financial markets, improve the confidence of investors and consumers, and foster the recovery of economic activity.1 As a result, the inventory cycle turned from depleting to rebuilding in most parts of the world and global trade rebounded. The improved external environment, together with stronger domestic demand spurred by these policy stimulus measures, led to a dramatic V-shaped recovery in Asian economies. By the end of 2009, most Asian economies had resumed their pre-crisis growth levels. Some of them have begun to moderate their macroeconomic stimulus policies in...

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