Discussion of Unconventional Monetary

Policy in the Asian Financial Crisis

Tamim Bayoumi and Joseph Gagnon
Asian Development Bank Institute 19th Annual Conference 2016

Jamie McAndrews
Wharton Financial Institutions Center
December 2, 2016

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank
Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the
data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB
official terms.
The paper examines the policy responses to the Asian
Financial Crisis of 1997-98 in Hong Kong, Indonesia, Korea,
and Thailand, as types of unconventional monetary policy.

The focus on the central bank balance sheet, and a model of

assets that are only partially substitutable, allow the authors
to categorize the various responses of the countries, as
involving more or less purchasing of risky assets.
There were four types of intervention:

1. Bank recapitalization most used by Thailand

2. Asset purchases most used by Korea

3. Liquidity support to banks most used by Indonesia

4. Purchase of equity index most used by Hong Kong

Results that I find very illuminating:

Thailand hit upon a relatively efficient way of injecting risky

assets into the economy, helping to offset the panic in the
private sector and limiting the costs of the crisis. The more
cautious approach taken by the Bank of Korea was less
effective, while the experience in Indonesia is a cautionary
tale about the risks of providing liquidity support without
adequate institutional controls.

The model implies that the HKMAs actions helped to

support GDP by supporting stock prices and thus
consumption and investment in Hong Kong.
Comments:

Unconventional monetary policy if often characterized as

consisting of forward guidance or large-scale asset purchases.

Used often when the economy encounters the ZLB.

These episodes did not involve the ZLB. An alternative lens

through which to view the episode is as lender of last resort, or
financial stabilization policies.

Gorton and Tallman (2016) emphasize the role of information

production in ending panics. Caballero (2009), in contrast, focuses
on the provision of contingent insurance.

The paper highlights the close links, or different dimensions, of

central bank policy; specifically between monetary and lender of
last resort policies.
Ricardo Caballero, Sudden Financial Arrest, IMF Economic Review 58.1
(August 2010) Mundell-Fleming Lecture prepared for the IMF 10th
Jacques Polack Annual Research Conference, November 2009

Gary Gorton and Ellis Tallman, How Did Pre-Fed Banking Panics End?
NBER Working Paper No. w22036, February 2016