This study investigates the requirement for the exchange rate to be a shock absorber inIndonesia and Thailand from 1986 to 2007. In general, we find that the economic shockshave predominantly been asymmetric relative to the US and the Japanese economies. Yet, theweights attached to the US dollar remain respectably high in the exchange rate managementof the rupiah and the baht, in particular for the latter currency, during the post-1997 crisis.Hence, relinquishing the role of exchange rate as a shock absorber has been costly duringboth the pre-and the post-1997 crisis periods for these Southeast Asian countries.Furthermore, it is arguably more costly for Thailand during the post-1997, and for Indonesiaduring the pre-1997 crisis.
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