“Room for Maneuver and Alternatives: A Reinterpretation of the German Crisis of 1931,” Journal of Economics and Management, 15 (2), pp. pp. 135-170.

With Kuo-chun Yeh and Mengyuan Cai

Abstract:

This paper revisits the German crisis of 1931, emphasizing that the cause of the crisis was borrowing in a currency that a sovereign cannot control and the resulting high level of foreign currency-denominated debt. We suggest that the deflationist policy of Heinrich Brüning was not due to gold-standard mentality, but because in a sovereign default he was forced to adopt fiscal austerity and not the other, even though such a policy was deemed to be self-defeating amid the crisis. Moreover, the much stated trade-off between the maintenance of the gold standard and the Reichsbank’s role as lender of last resort or that the banking crisis could have been voided if the Reichsbank was not committed to the maintenance of the gold standard is nothing but an illusion.

 

 

“Exchange Rates and Economic Recovery in the 1930s: An Extension to Asia,” Australian Economic History Review, 58 (2), pp. 134-152.

With Chien-Jung Ting

Abstract:

Scholars have found a positive relationship between the magnitude of currency depreciation and the extent of recovery from the Great Depression for Europe and Latin America. The relationship between currency depreciation and economic activity during the Great Depression for Asian economies has not yet been explored. This paper examines this topic using data from 13 Asian economies: China, India, Indonesia, Iran, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, Turkey, and Vietnam. We find that Asian economies responded in a similar way to currency depreciation during the Great Depression as did European and Latin American countries.

 

 

“Looking for a Needle in a Haystack: Revisiting the Cross-Country Causes of the 2008-09 Crisis by Bayesian Model Averaging,” Economica, 82, pp. 813-840.

Abstract:

In this paper we explore the cross-country variation in the output impact of the global financial crisis in 2008–9. We use the extensive dataset of Rose and Spiegel but control for the problems of model uncertainty and outliers by using a variety of Bayesian model averaging techniques. We find first that cross-country differences in crisis intensity can be explained by macroeconomic vulnerabilities. Second, ignoring model uncertainty can lead to incorrect inferences. Third, international trade linkages do matter.

 

 

“The Post-Asian Crisis Drop in Investment: The Cases of Indonesia, Korea, Malaysia and Thailand,” Contemporary Economic Policy, 32 (3), pp. 618-638.

With Kuo-chun Yeh

Abstract:

This study analyzes drops in East Asian investment and their determinants after the 1997–1998 Asian financial crisis. We first employ a random level-shift autoregressive model to quantify the shift in investment ratios of four Asian economies hit by the 1997–1998 Asian financial crisis: Indonesia, Korea, Malaysia, and Thailand. We trace the major historical shifts in the levels of investment ratios and we find that the cumulated downward shifts in investment ratios during 1997–1998 for Indonesia, Korea, Malaysia, and Thailand are 6 , 5 , 14 , and 14 percentage points, respectively. The investment ratios of most countries experienced several rebounds between 1999 and 2001, but the rebounds were too small to bring investment ratios back to their pre-1990 levels. Having identified the episodes of investment shifts, the Bayesian Model Averaging (BMA) and several robust tests are employed to investigate the determinants of those level shifts in investment ratios. We find that real per capita gross domestic product growth and banking crises are the two most important factors contributing to shifts in the investment levels of these four crisis-hit Asian economies. The results are useful in understanding the causes and remedies of global imbalances.

 

 

“Third-person effect and financial contagion in the context of a global game,” Open Economies Review, 23, pp. 823-846.

With Ming-yen Wu

Abstract:

In this paper we present a psychological channel of financial contagion. We incorporate this new channel of financial contagion in the global game. Our basic assumption is that agents are overestimating the influence of negative messages they ascribe to others, and are thus acting on the basis of this perception. We resort to the psychological studies on the so-called third-person effect to justify this assumption. We show that the third-person effect is rationalizable. Our model has the feature that a crisis in a foreign country can be transmitted to the domestic country, even though there has been no changes in domestic fundamentals. Our model also provides intuitive explanations to the empirical observations that many governments have lost in a confidence game in the past crisis episodes.

 

 

“ERM Crisis in Retrospect: What if A European Central Bank Has Been in Existence before 1992?” Economic Modelling, 28 (4), pp. 1526-1535.

With Kuo-chun Yeh

Abstract:

This paper explores whether policy coordination or a single monetary policy implemented earlier would have kept the U.K. in the process of European monetary integration. On the basis of the pre-ERM crisis empirics by Douven and Plasmans (1996), a counterfactual game simulation approach is used, and five scenarios are established for comparison with the actual historical records. The final answer is negative.

 

 

“Extremal Analysis of Currency Crises in Taiwan,” Applied Economics, 40 (9), pp. 1175-1186.

Abstract:

We employ extreme value theory to identify currency crises in Taiwan. The new approach is able to identify severe currency crises, and at the same time avoid the crisis-misclassification problem of Markov-switching models. Signal accounting indicates that currency crises in Taiwan are preceded by rapid expansion of domestic credit and other monetary aggregates, implying that financial excesses stressed by the third-generation crisis model are the main causes of these currency crises.

 

 

“Money Market Pressure and the Determinants of Banking Crises,” Journal of Money, Credit and Banking, 39 (5), pp. 1037-1066.

With Jürgen von Hagen

Abstract:

This article develops an index of money market pressure to identify banking crises. We define banking crises as periods in which there is excessive demand for liquidity in the money market. We begin with the theoretical foundation of this new method. With the newly defined crisis episodes, we examine the determinants of banking crises using data complied from 47 countries. We find that slowdown of real GDP, lower real interest rates, extremely high inflation, large fiscal deficits, and over-valued exchange rates tend to precede banking crises. The effects of  monetary base growth on the probability of banking crises are negligible.

 

 

“Potential Pitfalls of Markov Switching Models in the Studies of Currency Crises,” Taiwan Economic Review, 35 (2), pp. 213-247.

Abstract:

A growing literature proposes the use of Markov switching models to study currency crises. The new approach promises to avoid the potential misclassifications in the construction of a crisis dummy that the previous approaches suffer, and to identify a set of reliable indicators of speculative attacks. This paper assesses the costs and benefits of the new approach. Using a sample of four Asian countries, we show that the new approach suffers many of the same drawbacks as the previous approaches. Taking the forecast accuracy and calculation efforts into account, Markov switching models can hardly be a better alternative.

 

 

“Empirical Links between Twin Crises in the 1980s and the 1990s: Were There Differences?” in Frenkel, Karmann, and Scholtens eds. Sovereign Risk and Financial Crises, Springer.

With Jürgen von Hagen