Hong Kong's Currency Crisis: A Test of the 1990s ‘Washington Consensus’ View

type="main" xml:lang="en"> <title type="main">Abstract</title> <p>In the aftermath of the financial crisis that rocked Southeast Asia in 1997–98, prominent scholars argued that the advice dispensed by the International Monetary Fund and supported by the policy community in Washington had exacerbated rather than stabilized the crisis. In this paper, we look back at that debate by using Hong Kong's experience during the Asian financial crisis to test the then-consensus view on monetary tightening against the revisionist view of its critics. Hong Kong provides an interesting test of the two approaches because monetary policy was tightened and the pre-crisis exchange rate survived the speculative attack intact, in contrast to other studies that have examined the effects of tighter monetary policy during attacks that led to changes in exchange-rate management. Using a model of exchange-market pressure and VAR estimation, we find that our results are generally supportive of the revisionist hypothesis. </section>