The AMU Deviation Indicators Based on the Purchasing Power Parity and Adjusted by the Balassa-Samuelson Effect
AbstractThis paper investigates how the AMU Deviation Indicators for surveillance measurements among East Asian currencies are improved by changing their benchmark rates from the constant rates in 2000-2001 to time-varying rates based on their Purchasing Power Parities (PPPs). The Consumer Price Indexes (CPIs) are used to calculate their PPPs as a time-varying benchmark for the AMU Deviation Indicators. Because the CPIs include prices of non-tradable goods, the PPPs based on the CPIs have a problem related with the Balassa-Samuelson effect. For the reason, the PPPs adjusted by the Balassa-Samuelson effect should be used to calculate the AMU Deviation Indicators when the CPIs are used as price data. This paper compares the two types of the PPP-based AMU Deviation Indicators and the PPP-based AMU Deviation Indicators adjusted by the Balassa-Samuelson effect. We conclude that both the PPP- based AMU Deviation Indicators and the PPP-based AMU Deviation Indicators adjusted by the Balassa-Samuelson effect are also useful in making surveillance over overvaluation or undervaluation of the intra-regional exchange rates of East Asian currencies.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd12-255.
Date of creation: Nov 2012
Date of revision:
Asian Monetary Unit; AMU Deviation Indicators; Purchasing Power Parity; Balassa-Samuelson Effect; Regional Monetary Cooperation;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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