“The 1997-8 East Asian Currency Crisis, Financial Linkages and the Monetary Policy of Japan” by Kenneth S. CHAN
Kenneth S. CHAN
Vinh Q.T. DANG
This paper examines the evidence that the excessively liberal monetary policy from the Bank of Japan, before and after the financial collapse of Japan in 1992, may have led the other East Asian economies into 'over-borrowing' and speculative investments, prior to the currency crisis in 1997-8. We test for the cointegration between Japan money supply and the domestic investments in each of the Asian crisis economies. From the error correction model regressions, there is strong evidence that there is a long-run causal relationship between Japan money supply and the domestic investment of the Asian crisis economies prior to 1997.