How Did the Dollar Peg Fail in Asia?
AbstractIn this paper we have constructed a theoretical model in which Asian firms maximize their profit, competing with Japanese and US firms in their markets. The duopoly model is used to determine export prices and volumes in response to the exchange rate fluctuations vis-â¦-vis the Japanese yen and the US dollar. Then, the optimal basket weight to minimize the fluctuation of the growth rate of trade balance is derived. These are the novel features of our model. The export price equation and export volume equation are estimated for several Asian countries for the sample period of 1981 to 1996. Results are generally reasonable. The optimal currency weights for the yen and the US dollars are derived and compared with actual weights that had been adopted before the currency crisis of 1997. For all the countries in the sample, it is shown that the optimal weight of the yen is significantly higher than the actual weight.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of the Japanese and International Economies.
Volume (Year): 12 (1998)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/inca/622903
Other versions of this item:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
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- Jeffrey A. Frankel & Shang-Jin Wei, 1992.
"Yen bloc or dollar bloc: exchange rate policies of the East Asian economies,"
Pacific Basin Working Paper Series
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- Wei, S.J. & Frankel, J.A., 1992. "Yen Bloc or Dollar Bloc: Exchange Rate Policies of the East Asian Economies," Papers 92-08, University of Birmingham - International Financial Group.
- June Flanders, M. & Tishler, Asher, 1981. "The role of elasticity optimism in choosing an optimal currency basket with applications to Israel," Journal of International Economics, Elsevier, vol. 11(3), pages 395-406, August.
- Flanders, M June & Helpman, Elhanan, 1979. "An Optimal Exchange Rate Peg in a World of General Floating," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 533-42, July.
- Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
- Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
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