IDEAS home Printed from https://ideas.repec.org/a/bla/manchs/v67y1999i5p428-459.html
   My bibliography  Save this article

The Macroeconomics of the East Asian Crisis and the Implications of the Crisis for Macroeconomic Theory

Author

Listed:
  • Joseph Y. Lim

Abstract

In the first part of the paper I argue that the afflicted East Asian countries’ opening up to short‐term international capital flows resulted not only in financial vulnerabilities, which have been emphasized as the cause of the crisis, but also in macroeconomic weaknesses that contributed to the eruption of the crisis. These macroeconomic weaknesses are in the form of deteriorating foreign exchange earning capabilities, coupled with overvaluation of the currencies. The overvaluation led to distortion in relative prices that contributed to the speculative bubbles. In the second part of the paper I argue strongly that Keynes’s theories are very relevant to the present crisis. They include Keynes’s denial of the dichotomy between the real and monetary sectors, and the speculative demand for money and its role in the ‘liquidity’ and ‘investment’ traps. Most important is Keynes’s neglected psychological and ‘animal spirits’ factors, which were discussed in Chapter 12 of The General Theory. A rereading of this chapter shows that Keynes’s analysis is stronger and more perceptive than the ‘market failure’ analysis of Stiglitz, Rodrik and Krugman in arguing for strong financial regulation and supervision, as well as capital controls of short‐term international flows. The monetarist and rational expectations schools of thought are strongly criticized. These schools of thought paradoxically were the theoretical bases for the initial monetary and fiscal austerity measures imposed on the afflicted countries, which deepened and prolonged their crisis. Finally I also briefly discuss the implications of the crisis on the endogenous growth models and on the economics of institutions and governance.

Suggested Citation

  • Joseph Y. Lim, 1999. "The Macroeconomics of the East Asian Crisis and the Implications of the Crisis for Macroeconomic Theory," Manchester School, University of Manchester, vol. 67(5), pages 428-459, September.
  • Handle: RePEc:bla:manchs:v:67:y:1999:i:5:p:428-459
    DOI: 10.1111/1467-9957.00168
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-9957.00168
    Download Restriction: no

    File URL: https://libkey.io/10.1111/1467-9957.00168?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jomo K.S., 2005. "Malaysia´S September 1998 Controls: Background, Context, Impacts, Comparisons, Implications, Lessons," G-24 Discussion Papers 36, United Nations Conference on Trade and Development.
    2. Estrada, Dairo Ayiber & Gutiérrez R., Javier, 2009. "Supervisión y regulación del sistema financiero: modelos, implicaciones y alcances," Perfil de Coyuntura Económica, Universidad de Antioquia, CIE, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:manchs:v:67:y:1999:i:5:p:428-459. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/semanuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.