September 12, 2000
NOTE TO EDITORS
Contrary to the expectations of many economists, the 1997-98 Asian currency crisis had a positive, albeit small, impact on U.S. economic growth, according to a study by the Federal Reserve Bank of New York.
Senior economists Eric van Wincoop and Kei-Mu Yi find that the effects of lower interest rates on consumption and investment more than compensated for the negative contribution of the larger trade deficit. On the supply side, the depreciated Asian currencies led to lower U.S. imported intermediate goods prices, boosting output. On net, U.S. GDP was found to be about 0.2 percent, or $15-$20 billion, higher.
The analysis also finds that:
- Almost all of the net capital outflows from the crisis countries, about $80 billion, originated as banking flows; the majority went first to offshore center banks and later to banks in Europe.
- Much of the capital that left Asia eventually reached the United States, but in the form of foreign direct investment and portfolio investment rather than banking flows.
van Wincoop and Yis article--Asia Crisis Postmortem: Where Did the Money Go and Did the United States Benefit?--is being published in the Banks Economic Policy Review.