| This paper analyzes the ad hoc decision of three Asian countries to peg their currency to the U.S. dollar prior to the Asian crisis. It uses the Sjaastad model to estimate the optimal basket weights for Thailand, Korea, and Singapore. The analysis in this paper differs from the optimal basket research since we are not searching for an ad hoc optimal basket; rather, the basket is the solution to the problem. For Thailand and Korea, the correct weights of the dollar in the basket are estimated to be 44 and 65 percent, respectively, which differ significantly from the actual weight of 100 percent for the U.S. dollar in their currency basket prior to the 1997 Asian crisis. Singapore, with a weight of 85 percent for the U.S. currency, is closer to a dollar peg,... |
