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Analysis on β and σ Convergences of East Asian Currencies

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  • OGAWA Eiji
  • YOSHIMI Taiyo
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    Abstract

    This paper focuses on recent events which include the RMB reform in China and the global financial crisis to investigate statistically recent diverging trends among East Asian currencies. For the purpose, their weighted average value (Asian Monetary Unit: AMU) and their deviations (AMU Deviation Indicators) from benchmark levels are used to analyze both β and σ convergences of East Asian currencies. Our analytical results show that the monetary authority of China has still kept stabilizing the exchange rate of the Chinese yuan against only the US dollar even though it announced its adoption of a managed floating exchange rate system with reference to a currency. Analytical results on β and σ convergences show that deviations among the East Asian currencies have been diverging in recent years, especially after 2005. The widening deviations reflect not the RMB reform but recent international capital flows and the global financial crisis. In addition, it is important as its background that the monetary authorities of the countries are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intra-regional exchange rates in East Asia.

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    Bibliographic Info

    Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09018.

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    Length: 29 pages
    Date of creation: May 2009
    Date of revision:
    Handle: RePEc:eti:dpaper:09018

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    1. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
    2. Eiji Ogawa & Takatoshi Ito, 2000. "On the Desirability of a Regional Basket Currency Arrangement," NBER Working Papers 8002, National Bureau of Economic Research, Inc.
    3. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    4. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    5. Kawai, Masahiro & Akiyama, Shigeru, 1998. "The Role of Nominal Anchor Currencies in Exchange Rate Arrangements," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 334-387, December.
    6. Kawai, Masahiro & Akiyama, Shigeru, 2000. "Implications of the currency crisis for exchange rate arrangements in emerging East Asia," Policy Research Working Paper Series 2502, The World Bank.
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