Chronicle of Currency Collapses and the Effects on Output: Evidence from Six Asian Countries

The main goal of the present paper is to analyze the effects of currency collapses (a large devaluation of country’s nominal exchange rate) on real gross domestic products of six Asian countries (Iran, Indonesia, Malaysia, Pakistan, South Korea, and Turkey). A yearly data is collected from the WDI of the World Bank over the period 1980-2011. The econometric model includes the real GDP growth rate, inflation rate, and dummy variable (as a proxy variable for the currency collapse devaluation). The currency collapse devaluation is calculated using a criterion similar to M. Bussiere et al. (Journal of International Money and Finance, Vol.31, 2012: 680-708). Applying a panel econometric method, the estimated results show that both the inflation rate and currency collapses affect the real GDP growth rate negatively. The implication of finding is that the persistence of the currency crash matters for selected Asian countries.