Exchange Market Intervention and Evidence of Post-Crisis Flexible Exchange Rate Regimes in Selected East Asian Economies

By examining exchange market intervention activities of the monetary authority of each country, we revisit an old debate on whether crisis-effected countries in East Asia, namely Indonesia, Korea, Singapore and Thailand, have gone back to their pre-1997 rigid exchange rate policies, or, instead, have they actually moved to a more flexible regime? More importantly, if indeed there has been a shift from a rigid to a more flexible one, was the move a voluntary one, or mainly due to the presence of high market pressures on the currency? Given the absence of publicly available information on intervention in the foreign exchange market during the observation period, we propose an index of central bank intervention activity in the exchange market that also includes overnight market rates. Apart from applying the Markov switching ARCH and the extreme value theory methodologies to the construction of the index, thresholds of exchange rate regimes are also generated and utilized to systematically classify the types of exchange rate regimes that these East Asian countries adopted during the post-1997 financial crisis.