A De Facto Asian-Currency Unit Bloc in East Asia: It Has Been There but We Did Not Look for It
AbstractPegging in a coordinated way to a regional basket currency is considered by many as optimal for east-Asian countries. By contrast, according to existing empirical studies, these countries have most often relied on non-cooperative United States dollar or G3 pegs. We show for the first time that by the late 1990s, with some reversals, a majority of east-Asian countries had already moved, de facto, away from the dollar peg and started targeting a basket, including east-Asian currencies (an “Asian Currency Unit”). Common-shock or market-based interpretations of such moves are ruled out since we document that, with few exceptions, countries in the region have in reality stuck to fixed exchange rates. We obtain such results using a Markov-switching estimation benchmarked against Bai-Perron structural break tests for the synthesis model of Frankel and Wei (2007), which augments the inference about currency weights in a basket with the weight on exchange-market pressure. In order to measure the latter, the forward positions of central banks in the foreign exchange market are taken into account.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 262.
Length: 27 pages
Date of creation: 14 Jan 2011
Date of revision:
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More information through EDIRC
asian currency unit; east asian currencies; exchange rate regimes;
Other versions of this item:
- Eric Girardin, 2011. "A De Facto Asian-Currency Unit Bloc in East Asia : It Has Been There but We Did Not Look for It," Governance Working Papers 23275, East Asian Bureau of Economic Research.
- Eric Girardin, 2011. "A De Facto Asian-Currency Unit Bloc in East Asia : It Has Been There but We Did Not Look for It," Macroeconomics Working Papers 23275, East Asian Bureau of Economic Research.
- Eric Girardin, 2011. "A De Facto Asian-Currency Unit Bloc in East Asia : It Has Been There but We Did Not Look for It," Finance Working Papers 23275, East Asian Bureau of Economic Research.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-23 (All new papers)
- NEP-IFN-2011-01-23 (International Finance)
- NEP-MON-2011-01-23 (Monetary Economics)
- NEP-SEA-2011-01-23 (South East Asia)
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.:
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"Exchange Rates and Markov Switching Dynamics,"
CESifo Working Paper Series
1348, CESifo Group Munich.
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- Arvind Subramanian & Martin Kessler, 2012. "The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?," Working Paper Series WP12-19, Peterson Institute for International Economics, revised 2013.
- C. Randall Henning, 2012. "Choice and Coercion in East Asian Exchange Rate Regimes," Working Paper Series WP12-15, Peterson Institute for International Economics.
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