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Decomposing exchange rates of Asia into financial and real factors

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  • Dongchul Cho
  • Kyuesook Han

Abstract

This paper imagines a foreign exchange market in which a net financial flow curve and a current account curve interact to simultaneously determine equilibrium levels of exchange rate and current account. To identify the two curves, we selected four Asian countries (Indonesia, Korea, Philippines, and Thailand) that drastically liberalized financial accounts and exchange rate systems after the 1997 crisis, and assumed that the institutional changes altered the slopes of net financial outflow curves while maintaining those of current account. The results indicate that currency depreciation greatly contributes to stabilizing foreign exchange markets by suppressing financial outflows (or attracting inflows), although the effects are not uniform across the countries in the short-run.

Suggested Citation

  • Dongchul Cho & Kyuesook Han, 2017. "Decomposing exchange rates of Asia into financial and real factors," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(3-4), pages 377-386, October.
    • Handle: RePEc:taf:raaexx:v:24:y:2017:i:3-4:p:377-386
    DOI: 10.1080/16081625.2016.1166970
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