Financial crises, Asian stock indices, and current accounts: An Asian-U.S. comparative study

•This DSGE model utilizes first-differenced variables for a period from 1997 to 2010.•Both lagged exchange rate and interest rate act as stabilizers for stock indices in three countries.•Lagged consumption expenditure work as stabilizer for stock indices in four countries.•Both lagged exchange rate and consumption expenditure are destabilizers for current account balance in five countries.

This paper investigates the effects of financial crises-based exchange rate, real interest rate, and personal consumption expenditure on stock market indices and balances of current account in four Asian countries/areas, and the U.S. from 1997 to 2010. Results obtained from Sims's first-order DSGE representation suggest that two policy variables - changes in the exchange rate and changes in the real interest rate lagged by one quarter - act as stabilizers for contemporaneous changes in stock indices for Thailand, Malaysia, and the U.S., but as destabilizers for Taiwan and Hong Kong. However, changes in personal consumption expenditure lagged by one quarter only play a destabilizing role in Hong Kong. For contemporaneous changes in the current account balance, all three policy variables become destabilizers for all five countries except the one-quarter lagged change in real interest rate, which acts as a stabilizer in Malaysia.