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Synchronized Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate

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Author Info
Ronald McKinnon (Stanford University)
Gunther Schnabl (Tubingen University)

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Abstract

Because many authors have proposed stimulating the ailing Japanese economy by monetary expansion and yen depreciation, we explore the repercussions of depreciating the yen against the dollar on the other East Asian economies¡Xwhich largely peg to the dollar. Since 1980, economic integration among Japan¡¦s neighbors¡XChina, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, and Thailand¡Xhas intensified and (except for China) their business cycles have been highly synchronized. These cycles have been closely linked to fluctuations in the yen/dollar exchange rate¡Xthrough changes in their export competitiveness and inflows of foreign direct investment. We show that a major yen devaluation would have a negative impact on incomes in other East Asian economies and that it is not a sensible policy option for Japan.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 022003.

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Length: 23 pages
Date of creation: Jan 2003
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Handle: RePEc:hkm:wpaper:022003

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Ronald McKinnon & Kenichi Ohno, 2001. "The Foreign Exchange Origins of Japan's Economic Slump and Low Interest Liquidity Trap," The World Economy, Blackwell Publishing, vol. 24(3), pages 279-315, 03. [Downloadable!] (restricted)
  2. Ronald McKinnon & Gunther Schnabl, 2002. "Synchronized Business Cycles in East Asia: Fluctuations in the Yen/Dollar Exchange Rate and China’s Stabilizing Role," Working Papers 02010, Stanford University, Department of Economics. [Downloadable!]
  3. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July. [Downloadable!] (restricted)
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  4. Svensson, Lars-E-O, 2001. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 277-312, February. [Downloadable!]
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  5. Bennett T. McCallum, 2000. "Theoretical analysis regarding a zero lower bound on nominal interest rates," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 870-935.
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  6. Tim Callen & Warwick J. McKibbin, 2001. "Policies and Prospects in Japan and The Implications for the Asia-Pacific Region," IMF Working Papers 01/131, International Monetary Fund. [Downloadable!]
  7. Okina, Kunio, 1999. "Monetary Policy under Zero Inflation: A Response to Criticisms and Questions Regarding Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 157-82, December. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Willem THORBECKE, 2006. "The Effect of Exchange Rate Changes on Trade in East Asia," Discussion papers 06009, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  2. Bartosz Mackowiak, 2005. "What does the Bank of Japan do to East Asia?," SFB 649 Discussion Papers SFB649DP2005-059, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  3. Yin-wong Cheung & Jude Yuen, 2004. "The Suitability of A Greater China Currency Union," Working Papers 122004, Hong Kong Institute for Monetary Research. [Downloadable!]
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  4. Gunther Schnabl, 2006. "The Evolution of the East Asian Currency Baskets – Still Undisclosed and Changing," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Viera Chmelarova & Gunter Schnabl, 2006. "Exchange rate stabilization in developed and underdeveloped capital markets," Working Paper Series 636, European Central Bank. [Downloadable!]
  6. Alice Y. Ouyang & Ramkishen S. Rajan & Thomas D. Willett, 2007. "China as a Reserve Sink: The Evidence from Offset and Sterilization Coefficients," Working Papers 102007, Hong Kong Institute for Monetary Research. [Downloadable!]
  7. Abdul Karim, Bakri & Abdul Majid, M. Shabri & Abdul Karim, Samsul Ariffin, 2009. "Financial Integration between Indonesia and Its Major Trading Partners," MPRA Paper 17277, University Library of Munich, Germany. [Downloadable!]
  8. Gabriele Tondl & Iulia Traistaru-Siedschlag, 2006. "Regional growth cycle synchronisation with the Euro Area," Papers WP173, Economic and Social Research Institute (ESRI). [Downloadable!]
  9. James Laurenceson, . "China’s exchange rate policy: the case against abandoning the dollar peg," EAERG Discussion Paper Series 0105, School of Economics, University of Queensland, Australia. [Downloadable!]
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  10. Gunther Schnabl, 2005. "International Capital Markets and Exchange Rate Stabilization in the CIS," International Finance 0505015, EconWPA. [Downloadable!]
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  11. Schnabl, Gunther, 2005. "International Capital Markets and Informal Dollar Standards in the CIS and East Asia," Discussion Paper Series 26192, Hamburg Institute of International Economics. [Downloadable!]
  12. Yin-wong Cheung & Jude Yuen, 2005. "An Output Perspective on a Northeast Asia Currency Union," Working Papers 162005, Hong Kong Institute for Monetary Research. [Downloadable!]
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  13. Gunther Schnabl, 2007. "Exchange Rate Volatility and Growth in Emerging Europe and East Asia," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  14. Ronald McKinnon & Gunther Schnabl, 2003. "China: A Stabilizing or Deflationary Influence in East Asia? The Problem of Conflicted Virtue," Working Papers 03007, Stanford University, Department of Economics. [Downloadable!]
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  15. Gunther Schnabl, 2007. "Exchange rate volatility and growth in small open economies at the EMU periphery," Working Paper Series 773, European Central Bank. [Downloadable!]
    Other versions:
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