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ECN 171 Economy of East Asia Problem Set 4




Question;Pages 19-30 in Blustein, Chapter 21. What is meant by austerity, the traditional policy response that the IMF recommends to countries experiencing a balance of payments problem/current account crisis?2. What is the difference between a capital account crisis and a current account crisis?3. What is the problem with recommending austerity measures to a country experiencing a capital account crisis?Blustein, Chapter 3: Winnie the Pooh and the Big Secret 1. What conditions imposed in the IMF bailout were the most difficult for the Thai government to accept?2. What role did the real estate market play in making the financial sector vulnerable to crisis? 3. What is short selling? How does it figure into a speculative attack?4. Discuss the role of transparency in the difficulties faced by the Thai central bank. What information did central bank officials hide from the IMF and investors? Was it a good idea for the IMF to force the government to reveal the information as part of the bailout agreement?Blustein, Chapter 41. Did Indonesia have a large current account deficit or a shortage of foreign reserves before the crisis?2. What was Indonesias growth rate in 1998? How were rural and urban wages affected? What was the social impact?3. What is KKN?Blustein, Chapter 5, Sleepless in Seoul1. What role did foreign banks play in spreading the crisis from Thailand to Korea?2. When the IMF declared that Korea was in great financial health before the crisis, was it aware of the true level of reserves held by the Bank of Korea (the central bank)? Was it aware of the extent to which overseas branches of Korean banks owed money to foreign banks?Pages 73-79 in Bank Lending and Contagion: Evidence from the Asian crisis, by Graciela L. Kaminsky and Carmen M. Reinhart in course reader1. In Table 3.1 on page 77, describe what happened to bank lending in Emerging Asia in 1997 and 1998. Which countries do the authors define as Emerging Asia? (See footnotes on that page.)2. Looking at this table, which banks pulled out first? Which reduced their lending the most dramatically in percentage terms?Which reduced the actual dollar amount of their lending the most?3. Describe the common lender channel of contagion that is, how banks can be involved in transmitting a crisis from one country to another (see the top of p.76).


Paper#56059 | Written in 18-Jul-2015

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