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Exchange Rate Coordination in Asia : Evidence using the Asian Currency Unit

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  • Abhijit Sen Gupta

    (Asian Development Bank Institute (ADBI))

Abstract

This paper evaluates the extent of exchange rate coordination among Asian economies using a hypothetical Asian Currency Unit. Rising interdependence among Asian economies makes it vital for these economies to have a certain degree of exchange rate stability. However, the empirical evidence using an Asian Currency Unit suggests a widening deviation in exchange rate movements of the Asian currencies. The deviation has been driven by the adoption of different exchange rate regimes by the participating countries indicating diverse policy objectives. There are a number of institutions in the region that can assist exchange rate coordination and greater economic and financial integration. These institutions, including a multilateralized swap arrangement, a regional surveillance mechanism, and a bond fund; have to be significantly strengthened for them to play a role in fostering greater economic cooperation. The denomination of financial assets in the Asian Currency Unit in transactions involving these institutions would also enhance exchange rate cooperation.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 23321.

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Date of creation: Apr 2012
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Handle: RePEc:eab:macroe:23321

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Keywords: Exchange rate coordination; Asia; Asian Currency Unit; exchange rate stability; financial cooperation;

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References

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  1. 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.
  2. Kenen,Peter B. & Meade,Ellen E., 2008. "Regional Monetary Integration," Cambridge Books, Cambridge University Press, number 9780521862509, October.
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  4. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  5. Haruhiko Kuroda & Masahiro Kawai, 2002. "Strengthening Regional Financial Cooperation in East Asia," Asia Pacific Economic Papers 332, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  7. C. Simon Fan & Xiangdong Wei, 2006. "The Law of One Price: Evidence from the Transitional Economy of China," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 682-697, November.
  8. Masahiro Kawai & Ganeshan Wignaraja, 2009. "The Asian “Noodle Bowl”:Is It Serious for Business?," Working Papers id:1936, eSocialSciences.
  9. Barry Eichengreen, 2006. "The Parallel-Currency Approach to Asian Monetary Integration," American Economic Review, American Economic Association, vol. 96(2), pages 432-436, May.
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Cited by:
  1. Victor Pontines, 2013. "How Useful Is an Asian Currency Unit (ACU) Index for Surveillance in East Asia?," Finance Working Papers 23398, East Asian Bureau of Economic Research.

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