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Exchange Rate Regimes and Equilibrium Exchange Rates in East Asia

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  • Se-Eun Jeong
  • Jacques Mazier

Abstract

Estimation of equilibrium exchange rates is conducted for the three main Asian currencies (Japan, China, South Korea) with theoretical framework of Williamson [1994]. It highlights the problems of regional monetary cooperation that have gained momentum after the outbreak of the 1997-1998 financial crises in East Asia. The Chinese yuan became undervalued during the second part of the 1990s, which can explain its resistance faced with the Asian crisis. The yen became marked by contrast between a weak undervaluation against the dollar since 1998 and an overvaluation against the Chinese yuan since 1995 and Korean won since 1998. As for the Korean won, an overvaluation appeared before the Asian crisis, followed by an undervaluation compared to the dollar and yen. Persisting misalignments of these three currencies attest to the need for regional monetary cooperation. Estimated equilibrium exchange rates would be useful to set exchange rate parities at the launching of any new institutional arrangements (common basket peg policy, yen bloc, acu).

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Bibliographic Info

Article provided by Presses de Sciences-Po in its journal Revue économique.

Volume (Year): 54 (2003)
Issue (Month): 5 ()
Pages: 1161-1182

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Handle: RePEc:cai:recosp:reco_545_1161

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  1. John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17.
  2. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
  3. Simon Wren-Lewis & Rebecca Driver, 1998. "Real Exchange Rates for the Year 2000," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa54.
  4. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  5. Stein, Jerome L. & Allen, Polly Reynolds, 1998. "Fundamental Determinants of Exchange Rates," OUP Catalogue, Oxford University Press, number 9780198293064, September.
  6. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
  7. Menzie David Chinn & Eswar Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries," IMF Working Papers 00/46, International Monetary Fund.
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