The pre- and post-crisis real exchange rate behavior in selected East Asian countries

This article examines the real exchange rate behavior during the pre-crisis and post-crisis periods in selected East Asian countries by verifying its long-run stability through unit root tests, and investigates the interaction among the component variables of the real exchange rate, i.e. the exchange rate and the relative prices, by means of a vector autoregressive (VAR) model. The main findings of the study are as follows. First, the results of the unit root tests indicate the non-stationarity of the real exchange rate of each sample country during the pre-crisis period. Second, the test results show the stationarity of the real exchange rates in all the sample countries during the combined crisis and post-crisis period, although, during the post-crisis period alone, they do not always do so. Third, the results of the VAR model analyses reveal that most of the cases during the combined crisis and post-crisis period, covering all sample countries, support the Granger causality from the relative prices to the exchange rate and describe a significant, continuous effect of the relative prices on the exchange rate.