ASIAN FINANCIAL CRISIS OF 1997-1998: A TALE OF TWO COUNTRIES

Abstract

The purpose ofthis paper is to explain not only why Asian Financial Crisis of1997-1998 occurred, but also why some countries suffer a lot from speculative attacks, while other countries survived relatively unscratched throughout the crisis. For example, South Korea and Indonesia were engulfed by the crisis while Taiwan and Singapore fared better. After tracing major factors contributing to the Asian currency crisis and establishing stylizedfacts about underlying causes, we focus on South Korea and Taiwan to contrast different results from speculative attacks on their currencies. In order to find out why these two countries had different effects ofthe crisis, we examine macro-fundamental variables ofSouth Korea and Taiwan and iden.tify some potential causes ofthe crisis by using Engle and Granger causality test and co-integration analysis. Our findings show that there exists a unidirectional causalityfrom internationalfinance variables to the currency value for South Korea, but no causality between them for Taiwan.

Keywords

• asian financial crisis
• speculative attacks
• currency value