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The Changing Dynamics of the East Asian Real Exchange Rates after the Financial Crisis: Further Evidence on Mean Reversion

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  • Baharumshah, Ahmad Zubaidi
  • Chan, Tze-Haw
  • Aggarwal, Raj

Abstract

Using an improved statistical methodology including tests designed for heterogeneous panels, this paper tests for mean reversion in monthly US Dollar based real exchange rates for nine East Asian countries, including those that were severely affected by the 1997 Asian financial crises. The empirical results reveals mean reversion in real Asian exchange rates is a feature of the post-crises sub-period (1997-2005) but not of the pre-crises sub-period (1981-1996). Additionally, we make a point that a faster speed of convergence to PPP and lower adjustment half-lives for real exchange rates compared to those reported for major industrialized country currencies and especially so for the post-crises period in Asia.

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File URL: http://mpra.ub.uni-muenchen.de/6090/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6090.

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Date of creation: May 2006
Date of revision: 22 Nov 2007
Handle: RePEc:pra:mprapa:6090

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Keywords: Purchasing power parity; Panel unit root tests; Asian financial crisis;

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