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Exchange rate linkages between the ASEAN currencies, the US dollar and the Chinese RMB

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  • Caporale, Guglielmo Maria
  • Gil-Alana, Luis A.
  • You, Kefei

Abstract

This paper investigates whether the RMB is in the process of replacing the US dollar as the anchor currency in nine ASEAN countries, and also the linkages between the ASEAN currencies and a regional currency unit. A long-memory (fractional integration) model allowing for endogenously determined structural breaks is estimated for these purposes (Gil-Alana, 2008). The results suggest that the ASEAN currencies are much more interlinked than previously thought, whether or not breaks are taken into account, which provides support for a regional currency index as an anchor. Moreover, incorporating a break shows that the linkages between these currencies and the RMB and the US dollar respectively are equally important, and in fact in recent years the former have become stronger than the latter. Therefore including the RMB in the regional index should be considered.

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  • Caporale, Guglielmo Maria & Gil-Alana, Luis A. & You, Kefei, 2018. "Exchange rate linkages between the ASEAN currencies, the US dollar and the Chinese RMB," Research in International Business and Finance, Elsevier, vol. 44(C), pages 227-238.
    • Handle: RePEc:eee:riibaf:v:44:y:2018:i:c:p:227-238
    DOI: 10.1016/j.ribaf.2017.07.091
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    3. Siklos, Pierre L., 2018. "Boom-and-bust cycles in emerging markets: How important is the exchange rate?," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 172-187.
    4. Marinakis, Yorgos D. & White, Reilly & Walsh, Steven T., 2020. "Lotka–Volterra signals in ASEAN currency exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 545(C).
    5. Dayong Zhang & Wanli Zhao & Fei Wu & Qiang Ji, 2020. "Financial Integration in Asia: A Systemic View on Currency Markets," Asian Economic Papers, MIT Press, vol. 19(2), pages 41-58, Summer.
    6. He, Qing & Wang, Wenqing & Yu, Jishuang, 2023. "Exchange rate co-movements and corporate foreign exchange exposures: A study on RMB," International Review of Financial Analysis, Elsevier, vol. 90(C).
    7. Krapl, Alain A., 2020. "The time-varying diversifiability of corporate foreign exchange exposure," Journal of Corporate Finance, Elsevier, vol. 65(C).
    8. Jianxu Liu & Mengjiao Wang & Songsak Sriboonchitta, 2019. "Examining the Interdependence between the Exchange Rates of China and ASEAN Countries: A Canonical Vine Copula Approach," Sustainability, MDPI, vol. 11(19), pages 1-20, October.
    9. Guglielmo Maria Caporale & Luis A. Gil-Alana & Kefei You, 2019. "Stock market linkages between the ASEAN countries, China and the US: a fractional cointegration approach," CESifo Working Paper Series 7537, CESifo.

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    More about this item

    Keywords

    ASEAN currencies; Chinese RMB; US dollar peg; Fractional integration; Breaks;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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