East Asia in the Aftermath: Was there a Crunch?

Author: Mr. Atish R. Ghosh and Swart R. Ghosh

This paper uses a disequilibrium framework to investigate a possible credit crunch in the East Asian crisis countries (Indonesia, Korea, and Thailand) during 1997-98. It defines a credit crunch as a situation in which interest rates do not equilibrate supply and demand for credit and the aggregate amount is supply constrained, i.e. there is quantity rationing. In all three countries, rising real interest rates and weakening economic activity lowered credit demand and (with the exception of Indonesia in late 1997) there is little evidence of quantity rationing at the aggregate level-although individual firms may have lost access to credit.

Volume/Issue: Volume 1999 Issue 038

Publication date: March 1999

ISBN: 9781451845679

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Topics covered in this book

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Business and Economics , Banks and Banking , Money and Monetary Policy , WP , credit crunch , East Asia Currency Crises , credit supply , credit demand , lending capacity , credit financing , credit condition , Credit , Real interest rates , Bank credit , Commercial banks , Capital adequacy requirements , East Asia

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Summary

This paper uses a disequilibrium framework to investigate a possible credit crunch in the East Asian crisis countries (Indonesia, Korea, and Thailand) during 1997-98. It defines a credit crunch as a situation in which interest rates do not equilibrate supply and demand for credit and the aggregate amount is supply constrained, i.e. there is quantity rationing. In all three countries, rising real interest rates and weakening economic activity lowered credit demand and (with the exception of Indonesia in late 1997) there is little evidence of quantity rationing at the aggregate level—although individual firms may have lost access to credit.