Browsing by Subject "Financial crises--Asia"
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Item Choosing coalition partners: the politics of central bank independence in Korea and Taiwan(2006) Byun, Young Hark; Boone, CatherineThis study is to explain why Taiwan’s elites delegate the independent authority of financial and monetary management to central bankers which resulted in survival of the Asian crisis, while Korean political leadership did not do so and the economy faltered in the crisis? My arguments are 1) if politicians choose capital-intensive industry and/or organized labor as their major coalition partners, they will not allow central bankers to have an independent authority; 2) if politicians choose other groups as their coalition partners (i.e., commercial banks, agriculture, and/or small-medium sized enterprises), they will be more likely to provide central bankers with independent authority. In addition to the two cases studies, I explore three Southeast Asian countries (Singapore, Malaysia, and Thailand). By employing statistical analyses to test the generalizability of my arguments in the context of developing countries, I confirm the hypotheses. Implications of my study include 1) the state needs to include subordinate social groups to counterbalance big bourgeoisie, especially in the globalization era; and 2) merely institutional or economic reform does not guarantee an independent central banking system; rather it is necessary to include heterogeneous social groups into the growth coalition to support effective central banking systems from below.Item Foreign portfolio flows and emerging markets: lessons from Thailand(2004) Pavabutr, Pantisa; Titman, Sheridan; Yan, HongEmerging markets are generally small and fairly illiquid. Thus, extreme price volatility is a matter of concern as a slight change in trading activity can assert significant pressure on prices. It comes as no surprise that the movement of foreign equity flows exert significant influences in emerging markets as they have tremendously increased over the last two decades subsequent to a general trend in continued liberalization around the world, especially in Asia Pacific. This research focuses on the effect of foreign flows on emerging market returns and addresses several empirical asset pricing issues in the Asia Pacific markets by using the data from the Thai stock exchange. The dissertation provides a quantitative assessment on the impact of foreign portfolio flows on the Thai equity market before, during, and after the Asian financial crisis. The study investigates the differential impact of foreign equity flows on the pricing and volatility of the aggregate market and of two market segments; one consisting of stocks that are favored by foreign investors and the other less favored. The empirical results reveal that the price pressure impact on the first segment is more positive. This finding corroborates with the fact that the flow betas which measure the exposure to unexpected foreign flows are mostly positive (negative) for stocks with high (low) foreign interest. The cross-sectional analysis finds that exposure to unexpected flows has a significant valuation impact for stocks in the first segment, but not for those in the second. The study finds no evidence to suggest that foreign investors cause excess volatility in the market. Rather, it appears that the extraordinarily high volatility during the crisis period is related to domestic selling as foreign investors are net buyers, and thus liquidity providers during that period. Recognizing the importance of foreign flow in promoting trading activity, my study shows that the impact of foreign flow on market volatility may be erroneously magnified without controlling for market liquidity. These results hold in both market segments.Item Short-term debt and international banking crises(2004-08) Seo, Eunsook, 1968-; Cooper, Russell W., 1955-; Paal, BeatrixAfter the liberalization of financial markets in the 1980s many developing countries experienced large amount of foreign capital inflows, in particular, in the term of short-term debts. In the Asian countries, many economists believe that this kind of short-term debts is one of the major causes for the Asian financial crises that happened in the late 1990s. Thus, the Asian financial crises called into question the role of foreign short-term debts in the banks’ liquidity situation. The first essay explores how a bank run can occur when a bank takes into account short-term capital inflow from abroad. In the model, it is more efficient to meet short term liquidity needs this way than by holding liquid domestic assets; therefore, the bank’s portfolio at the beginning of the period will be more illiquid than in the baseline closed economy case. However, this illiquidity makes the domestic banks extremely vulnerable to bank runs. More interestingly, the cause of a domestic bank run in this model is the pessimistic expectations of the foreign investors regarding other foreigners’ willingness to lend. I show conditions under which a “bad” equilibrium exists in which pessimistic foreign investors withhold their investments making a bank run the equilibrium strategy for domestic agents and making those viii expectations self-fulfilling. The second essay extends the analysis to study on optimal contracts. In this essay I investigate a mechanism design question: What should be the optimal contract in the presence of the possibility of a sunspot-triggered bank runs? With a specific CRRA utility function, I find that the equilibrium of the model never involves bank runs with positive probability. Even if foreign lenders anticipated a bank run with positive probability and charged a correspondingly higher interest rate, it would be optimal for the domestic bank to write a contract and make a portfolio plan that avoids runs. In the third essay, I examines the effects of monetary policy in Korea. The model takes into account the openness of the economy and the structural break in monetary policy that occurred in Korea after the 1997 financial crisis, which is important for the Korean economic situation of recent periods. The principal finding in this paper is that the CD rate is most significant instrument, as the consequences are consistent with expectations of monetary policy.