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The Stability of Currency Systems in East Asia --Quantitative Analysis Using a Multi-Country Macro-Econometric Model--


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  • Koichiro Kamada

    (Director , Finacial Systems and Bank Examination Department, Bank of Japan)


The purpose of this paper is to examine the stability of East Asian financial and currency systems, using the multi-country macro-econometric model constructed by Kamada and Takagawa (2005) to depict economic interdependence in the Asian-Pacific region. The highly-developed system of the international production network in the East Asian region was not only the driving force behind the "East Asian miracle," but also, as seen in the "Asian currency crisis," worked as a platform whereby local economic crises immediately spread across countries. Economic interdependence in East Asia creates policy interdependence, whereby policy judgments in one country also affect the economies of other countries, and moreover, are fed back to the economy of the original country. After the currency crisis, several East Asian economies implemented reforms of their currency systems. In doing so, the chief concern of policymakers is thought to have been the problems of how to prevent a recurrence of the currency crisis and how to protect their own economies from currency crises occurring in other countries. Now that international safety nets such as the Chiang Mai Initiative are being cast over East Asia, the importance of currency crisis shocks is expected to become relatively small. Moreover, the economic situation in East Asia is changing, as observed in the rise of the Chinese economy and structural changes in the US and Japan. Therefore, systems designed on the basis of the current economic situation may not necessarily be maintained in their existing form. In this paper, the author carefully studies whether or not shifting from existing policy regimes to alternative policy regimes in nine East Asian countries or regions (Indonesia, Singapore, Thailand, the Philippines, Malaysia, South Korea, Hong Kong, Taiwan and China) is effective in increasing economic stability in their own countries against various economic shocks. As a result of the analysis, it is suggested that the existing currency system in East Asia is not necessarily stable and is likely to undergo further transformations in the future.

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Bibliographic Info

Article provided by Policy Research Institute, Ministry of Finance Japan in its journal Public Policy Review.

Volume (Year): 5 (2009)
Issue (Month): 1 (October)
Pages: 109-138

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Handle: RePEc:mof:journl:ppr005f

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  1. Koichiro Kamada & Izumi Takagawa, 2005. "Policy Coordination in East Asia and across the Pacific," Hi-Stat Discussion Paper Series d05-101, Institute of Economic Research, Hitotsubashi University.
  2. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  3. 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.
  4. Kawai, Masahiro, 2002. "Exchange Rate Arrangements in East Asia: Lessons from the 1997-98 Currency Crisis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 167-204, December.
  5. Kamada, Koichiro, 2005. "Real-time estimation of the output gap in Japan and its usefulness for inflation forecasting and policymaking," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 309-332, December.
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