ABSTRACT
The financial and economic crisis in Asia that erupted in July 1997 has sparked a vigorous debate on its causes and on the role of domestic and international policy responses during its evolution. An excellent overview of this debate and analysis of the economies concerned can be found in Corsetti et al. (1998). Some authors have argued that the shock was purely the result of a shift in investor confidence (Radelet and Sachs 1998a), while others argue that a build-up of pressure from country-specific problems and evolving global macroeconomic conditions eventually led to the crisis (Corsetti et al. 1998; Krugman 1998a).1 All that was needed to set it off was a trigger. McKibbin ( 1998) argues that the crisis was triggered by a rise in US interest rates and falls in US equity markets in March and August 1997, causing the collapse of the pegged exchange rate regimes in some economies. The response of each economy in the aftermath of this shock then reflected varying degrees of financial weakness and shortcomings in institutional and political structures.
