IDEAS home Printed from https://ideas.repec.org/a/ime/imemes/v25y2007is1p207-232.html
   My bibliography  Save this article

Monetary Policy in East Asia: Common Concerns

Author

Listed:
  • Marvin Goodfriend

    (Carnegie Mellon University (E-mail: marvingd@andrew.cmu.edu))

Abstract

The paper identifies and evaluates consequences for monetary policy of five features of East Asian development: export orientation, integrated regional trade, bank-dependent finance, the potential for persistent trade surpluses, and the aggressive accumulation of international reserves. The case for a flexible exchange rate is made in terms of the New Neoclassical Synthesis (NNS). NNS logic indicates why fluctuations in "export optimism" create problems for the sustainability of a fixed exchange rate. Cooperative credit policy in East Asia is discussed by analogy to a credit union. The paper outlines problems for monetary policy created by bank-dependent finance in East Asia. A two-country NNS model indicates that a revaluation of the renminbi against the U.S. dollar is likely to exert little effect on the U.S. trade deficit, although it should help control inflation in China. The paper argues that China can adopt a flexible exchange rate in a few years with modest reforms of its banking system. Finally, the paper considers various reasons for the accumulation of international reserves in East Asia.

Suggested Citation

  • Marvin Goodfriend, 2007. "Monetary Policy in East Asia: Common Concerns," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(S1), pages 207-232, December.
    • Handle: RePEc:ime:imemes:v:25:y:2007:i:s1:p:207-232
    as

    Download full text from publisher

    File URL: https://www.imes.boj.or.jp/research/papers/english/me25-s1-9.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Devereux, Michael B. & Genberg, Hans, 2007. "Currency appreciation and current account adjustment," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 570-586, June.
    2. George Soros, 1999. "The International Financial Crisis," Challenge, Taylor & Francis Journals, vol. 42(2), pages 58-76, March.
    3. Husain, Aasim M. & Mody, Ashoka & Rogoff, Kenneth S., 2005. "Exchange rate regime durability and performance in developing versus advanced economies," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 35-64, January.
    4. Bank for International Settlements, 2006. "Developing corporate bond markets in Asia," BIS Papers, Bank for International Settlements, number 26.
    5. Hiroshi Fujiki & Akiko Terada-Hagiwara, 2007. "Financial Integration in East Asia," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(S1), pages 57-100, December.
    6. Hans Genberg, 2006. "Exchange-rate arrangements and financial integration in East Asia: on a collision course?," International Economics and Economic Policy, Springer, vol. 3(3), pages 359-377, December.
    7. Hans Genberg, 2006. "Exchange-rate arrangements and financial integration in East Asia: on a collision course?," International Economics and Economic Policy, Springer, vol. 3(3), pages 359-377, December.
    8. Matthew Higgins & Thomas Klitgaard, 2004. "Reserve accumulation: implications for global capital flows and financial markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Sep).
    9. Patrick C. Higgins & Owen F. Humpage, 2005. "The Chinese renminbi: what’s real, what’s not," Economic Commentary, Federal Reserve Bank of Cleveland, issue Aug.
    10. Yu Yongding, 2007. "Global Imbalances and China," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 40(1), pages 3-23, March.
    11. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
    12. Goodfriend, Marvin & McDermott, John, 1998. "Industrial Development and the Convergence Question," American Economic Review, American Economic Association, vol. 88(5), pages 1277-1289, December.
    13. Bank for International Settlements, 2006. "Monetary policy in Asia: approaches and implementation," BIS Papers, Bank for International Settlements, number 31.
    14. Marvin Goodfriend & Eswar Prasad, 2009. "A Framework for Independent Monetary Policy in China," Chapters, in: Gill Hammond & Ravi Kanbur & Eswar Prasad (ed.), Monetary Policy Frameworks for Emerging Markets, chapter 8, Edward Elgar Publishing.
    15. Eichengreen, Barry, 2006. "Global Imbalances and the Asian Economies: Implications for Regional Cooperation," Working Papers on Regional Economic Integration 4, Asian Development Bank.
    16. Bank for International Settlements, 2006. "The banking system in emerging economies: how much progress has been made?," BIS Papers, Bank for International Settlements, number 28.
    17. Enrique Alberola & José María Serena, 2007. "Global financial integration, monetary policy and reserve accumulation. Assessing the limits in emerging economies," Working Papers 0706, Banco de España.
    18. Goodfriend, Marvin, 2007. "International Adjustment in the New Neoclassical Synthesis," Kiel Working Papers 1345, Kiel Institute for the World Economy (IfW Kiel).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    2. Friedrich L. Sell, 2007. "Anticipated effects of foreign currency reserve diversification in Asian countries: Do China and India matter for coordination?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(01), pages 32-38, April.
    3. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    4. Friedrich L. Sell, 2007. "Anticipated effects of foreign currency reserve diversification in Asian countries: Do China and India matter for coordination?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(1), pages 32-38, April.
    5. Pontines, Victor, 2015. "How useful is an Asian Currency Unit (ACU) index for surveillance in East Asia?," Economic Systems, Elsevier, vol. 39(2), pages 269-287.
    6. Kunze, Frederik, 2017. "Predicting exchange rates in Asia: New insights on the accuracy of survey forecasts," University of Göttingen Working Papers in Economics 326, University of Goettingen, Department of Economics.
    7. Esaka, Taro, 2010. "Exchange rate regimes, capital controls, and currency crises: Does the bipolar view hold?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(1), pages 91-108, February.
    8. Lahura, Erick & Vega, Marco, 2013. "Regímenes cambiarios y desempeño macroeconómico: Una evaluación de la literatura," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 101-119.
    9. Zeyneb GUELLIL & Fatima Zohra MAROUF & Mohammed Benbouziane, 2017. "Exchange Rate Regimes and Economic Growth in Developing Countries: An Empirical Study Using Panel Data from 1980 to 2013," MIC 2017: Managing the Global Economy; Proceedings of the Joint International Conference, Monastier di Treviso, Italy, 24–27 May 2017,, University of Primorska Press.
    10. Woosik Moon & Yeongseop Rhee, 2012. "Asian Monetary Integration," Books, Edward Elgar Publishing, number 14191.
    11. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    12. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, vol. 3(3), pages 341-352, December.
    13. Bruno Ferreira Frascaroli & Jailson da Conceição Teixeira de Oliveira, 2017. "Sub-Saharan African Countries’ Dependence on the External Inflation: Empirical Evidence Using Copulas," International Business Research, Canadian Center of Science and Education, vol. 10(12), pages 1-21, December.
    14. Straub, Roland & Thimann, Christian, 2010. "The external and domestic side of macroeconomic adjustment in China," Journal of Asian Economics, Elsevier, vol. 21(5), pages 425-444, October.
    15. Juan Carlos Martinez Oliva, 2014. "Moving Towards Monetary Integration in East Asia: Achieving Economic Convergence in a Game-Theory Framework," China Economic Policy Review (CEPR), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-24.
    16. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.
    17. Hwee Kwan Chow & Peter Nicholas Kriz & Roberto S. Mariano & Augustine H H Tan, 2007. "Financial Liberalization and Monetary Policy Cooperation in East Asia," Working Papers 03-2007, Singapore Management University, School of Economics.
    18. Engel, Charles, 2014. "Exchange Rates and Interest Parity," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 453-522, Elsevier.
    19. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 45-68, Spring.
    20. Alexandre B. Cunha, 2006. "Implications of the Modigliani-Miller Theorem for the Study of Exchange Rate Regimes," IBMEC RJ Economics Discussion Papers 2006-03, Economics Research Group, IBMEC Business School - Rio de Janeiro.

    More about this item

    Keywords

    East Asia; Monetary policy; Banking policy; Exchange rates; Trade balance; International reserves;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:25:y:2007:i:s1:p:207-232. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kinken (email available below). General contact details of provider: https://edirc.repec.org/data/imegvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.