The implications of a flexible exchange rate

The exchange rate float of July 1997 significantly altered several aspects of Thailand’s economic policy environment. The change occurred at a unique time. Never before had the Thai economy simultaneously encountered large foreign exchange risks, asset price deflation, income and wage reductions, recession, widespread bankruptcies and financial instability. As Warr (1999) remarks, Thailand’s crisis can be thought of as the collapse of a boom. To some extent, the exchange rate played an important role in this collapse.