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A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia

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  • Eiji Ogawa
  • Junko Shimizu
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    Abstract

    The monetary authorities in East Asian countries have been strengthening their regional monetary cooperation since the Asian Currency Crisis in 1997. In this paper, we propose a deviation measurement for coordinated exchange rate policies in East Asia to enhance the monetary authorities' surveillance process for their regional monetary cooperation. We estimate an AMU (Asian Monetary Unit) as a weighted average of East Asian currencies according to the method to calculate the ECU used under the EMS before introducing the euro into some EU countries. We consider four types of AMU, which are based on trade volume, nominal GDP, GDP measured at PPP, and international reserves. After choosing both the AMUs based on GDP measured at PPP weight and trade weight from a viewpoint of stability of the AMU value in terms of a currency basket composed of the US dollar and the euro, we calculate the deviation indicators from the benchmark rates for each of the East Asian currencies. We compare both nominal and real deviation indicators by taking into account inflation rate differentials. The real deviation indicator should be adequate for surveillance over effects of exchange rate policy on real economy while the nominal one can be frequently watched in real time.

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    Bibliographic Info

    Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 05017.

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    Length: 27 pages
    Date of creation: Mar 2005
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    Handle: RePEc:eti:dpaper:05017

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    Cited by:
    1. Chow, Hwee Kwan & Kim, Yoonbai & Sun, Wei, 2007. "Characterizing exchange rate policy in East Asia: A reconsideration," Journal of Asian Economics, Elsevier, vol. 18(3), pages 448-465, June.
    2. Hans Genberg, 2006. "Exchange-Rate Arrangements and Financial Integration in East Asia: On a Collision Course?," Working Papers 152006, Hong Kong Institute for Monetary Research.
    3. Ogawa, Eiji & Kudo, Takeshi, 2007. "Asymmetric responses of East Asian currencies to the US dollar depreciation for reducing the US current account deficits," Journal of Asian Economics, Elsevier, vol. 18(1), pages 175-194, February.
    4. Charles Adams & Hwee Kwan Chow, 2007. "Asian Currency Baskets : An Answer in Search of a Question?," Finance Working Papers 22055, East Asian Bureau of Economic Research.

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