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On the Won and Other East Asian Currencies

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  • Chinn, Menzie D

Abstract

Five East Asian currencies--the Indonesian rupiah, Korean won, Singapore dollar, Taiwanese dollar and the Thai baht--are modeled in the framework of a monetary specification augmented by the relative price of non-tradables. This relative price variable proxies for the Balassa-Samuelson effect in East Asian real exchange rates identified in previous studies. All of the currencies fit the long run implications of various types of monetary models, according to Johansen multivariate co-integration tests. Exchange rates do the bulk of adjustment toward equilibrium, except in the cases of the Thai baht and the New Taiwan dollar. For these currencies, interest rates and money supplies move to restore equilibrium. In ex post simulations, the out-of-sample fit of the estimated models is relatively good for the won, Singapore and New Taiwan dollars, and for the baht, although in no case is the exact magnitude and timing of the currency crashes predicted. The estimated model completely fails to track the rupiah out-of-sample. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 4 (1999)
Issue (Month): 2 (April)
Pages: 113-27

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Handle: RePEc:ijf:ijfiec:v:4:y:1999:i:2:p:113-27

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References

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  1. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
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  3. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
  4. Menzie Chinn & Michael Dooley, 1995. "Asia-Pacific Capital Markets: Measurement of Integration and the Implications for Economic Activity," NBER Working Papers 5280, National Bureau of Economic Research, Inc.
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  6. Robert Dekle & Mahmood Pradhan, 1997. "Financial Liberalization and Money Demand in Asean Countries," IMF Working Papers 97/36, International Monetary Fund.
  7. Menzie Chinn & William Maloney, 1995. "Financial and capital account liberalization in the Pacific Basin: Korea and Taiwan during the 1980's," International Finance 9508005, EconWPA.
  8. MacDonald, Ronald & Taylor, Mark P., 1994. "The monetary model of the exchange rate: long-run relationships, short-run dynamics and how to beat a random walk," Journal of International Money and Finance, Elsevier, vol. 13(3), pages 276-290, June.
  9. Menzie David Chinn, 1997. "The usual suspects? productivity and demand shocks and Asia-Pacific real exchange rates," Pacific Basin Working Paper Series 97-06, Federal Reserve Bank of San Francisco.
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  20. Reuven Glick & Ramon Moreno, 1994. "Capital flows and monetary policy in East Asia," Pacific Basin Working Paper Series 94-08, Federal Reserve Bank of San Francisco.
  21. Chinn, Menzie David, 1997. "Paper pushers or paper money? Empirical assessment of fiscal and monetary models of exchange rate determination," Journal of Policy Modeling, Elsevier, vol. 19(1), pages 51-78, February.
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  25. Bahmani-Oskooee, Mohsen & Rhee, Hyun-Jae, 1996. "Time-Series Support for Balassa's Productivity-Bias Hypothesis: Evidence from Korea," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 364-70, October.
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Citations

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Cited by:
  1. Balázs Égert, 2010. "The Impact of Monetary and Commodity Fundamentals, Macro News and Central Bank Communication on the Exchange Rate: Evidence from South Africa," Open Economies Review, Springer, vol. 21(5), pages 655-677, November.
  2. Lothian, James R. & Taylor, Mark P., 2006. "Real Exchange Rates Over the Past Two Centuries : How Important is the Harrod-Balassa-Samuelson Effect?," The Warwick Economics Research Paper Series (TWERPS) 768, University of Warwick, Department of Economics.
  3. Balazs Egert, 2013. "Dutch Disease in the Post-Soviet Countries of Central and South-West Asia: How Contagious is it?," CESifo Working Paper Series 4186, CESifo Group Munich.
  4. Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
  5. Chinn, Menzie David & Dooley, Michael P., 1999. "International monetary arrangements in the Asia-Pacific before and after," Journal of Asian Economics, Elsevier, vol. 10(3), pages 361-384.
  6. Sebastian Edwards, 2011. "Exchange Rates in Emerging Countries: Eleven Empirical Regularities from Latin America and East Asia," NBER Working Papers 17074, National Bureau of Economic Research, Inc.
  7. Mody, Ashoka & Taylor, Mark P, 2003. "Common Vulnerabilities," CEPR Discussion Papers 3759, C.E.P.R. Discussion Papers.
  8. Renu Kohli & Kenneth Kletzer, 2004. "Exchange RAte Dynamics with Financial Repression: A Test of Exchange Rate Models for India," International Finance 0405013, EconWPA.
  9. Andre Varella Mollick & Margot Quijano, 2004. "The Mexican Peso And The Korean Won Real Exchange Rates: Evidence From Productivity Models," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 189-208, June.
  10. Karl Whelan, 2013. "Sovereign default and the euro," Oxford Review of Economic Policy, Oxford University Press, vol. 29(3), pages 478-501, AUTUMN.
  11. Mody, Ashoka & Taylor, Mark P., 2007. "Regional vulnerability: The case of East Asia," Journal of International Money and Finance, Elsevier, vol. 26(8), pages 1292-1310, December.
  12. Sebastian Edwards, 2011. "Exchange-Rate Policies in Emerging Countries: Eleven Empirical Regularities From Latin America and East Asia," Open Economies Review, Springer, vol. 22(4), pages 533-563, September.
  13. Cartapanis, Andre & Dropsy, Vincent & Mametz, Sophie, 2002. "The Asian Currency Crises: Vulnerability, Contagion, or Unsustainability," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 79-91, February.

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