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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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Author Info
Baharumshah, Ahmad Zubaidi
Chan, Tze-Haw
Aggarwal, Raj

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

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Find related papers by JEL classification:
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
F31 - International Economics - - International Finance - - - Foreign Exchange

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  4. Salah Nusair, 2004. "Testing for PPP in developing countries using confirmatory analysis and different base countries: an application to Asian countries," International Economic Journal, Korean International Economic Association, vol. 18(4), pages 467-489, December. [Downloadable!] (restricted)
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  6. Lucio Sarno & Ibrahim Chowdhury, 2003. "The Behaviour of the Real Exchange Rate: Evidence from an Alternative Price Index," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 32(3), pages 295-333, November. [Downloadable!] (restricted)
  7. Kalyoncu, Huseyin & Kalyoncu, Kahraman, 2008. "Purchasing power parity in OECD countries: Evidence from panel unit root," Economic Modelling, Elsevier, vol. 25(3), pages 440-445, May. [Downloadable!] (restricted)
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  9. Baharumshah, Ahmad Zubaidi & Lau, Evan & Fountas, Stilianos, 2003. "On the sustainability of current account deficits: evidence from four ASEAN countries," Journal of Asian Economics, Elsevier, vol. 14(3), pages 465-487, June. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
    Other versions:
  13. Mototsugu Shintani, 2002. "A Nonparametric Measure of Convergence Toward Purchasing Power Parity," Working Papers 0219, Department of Economics, Vanderbilt University, revised Jul 2004. [Downloadable!]
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  14. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February. [Downloadable!] (restricted)
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  15. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I. [Downloadable!] (restricted)
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  18. Azali, M. & Habibullah, M. S. & Baharumshah, A. Z., 2001. "Does PPP hold between Asian and Japanese economies? Evidence using panel unit root and panel cointegration," Japan and the World Economy, Elsevier, vol. 13(1), pages 35-50, January. [Downloadable!] (restricted)
  19. Alba, Joseph D. & Papell, David H., 2007. "Purchasing power parity and country characteristics: Evidence from panel data tests," Journal of Development Economics, Elsevier, vol. 83(1), pages 240-251, May. [Downloadable!] (restricted)
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