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A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia

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  • Eiji Ogawa
  • Junko Shimizu

Abstract

The monetary authorities in East Asian countries have been strengthening their regional monetary cooperation since the Asian Currency Crisis in 1997. In this paper, we propose a deviation measurement for coordinated exchange rate policies in East Asia to enhance the monetary authorities' surveillance process for their regional monetary cooperation. We estimate an AMU (Asian Monetary Unit) as a weighted average of East Asian currencies according to the method to calculate the ECU used under the EMS before introducing the euro into some EU countries. We consider four types of AMU, which are based on trade volume, nominal GDP, GDP measured at PPP, and international reserves. After choosing both the AMUs based on GDP measured at PPP weight and trade weight from a viewpoint of stability of the AMU value in terms of a currency basket composed of the US dollar and the euro, we calculate the deviation indicators from the benchmark rates for each of the East Asian currencies. We compare both nominal and real deviation indicators by taking into account inflation rate differentials. The real deviation indicator should be adequate for surveillance over effects of exchange rate policy on real economy while the nominal one can be frequently watched in real time.

Suggested Citation

  • Eiji Ogawa & Junko Shimizu, 2005. "A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia," Discussion papers 05017, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:05017
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    Cited by:

    1. Charles Adams & Hwee Chow, 2009. "Asian Currency Baskets: An Answer in Search of a Question?," Open Economies Review, Springer, pages 403-423.
    2. 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.
    3. Chow, Hwee Kwan & Kim, Yoonbai & Sun, Wei, 2007. "Characterizing exchange rate policy in East Asia: A reconsideration," Journal of Asian Economics, Elsevier, vol. 18(3), pages 448-465, June.
    4. Guglielmo Maria Caporale & Luis A. Gil-Alana & Kefei You, 2016. "Exchange Rate Linkages between the ASEAN Currencies, the US Dollar and the Chinese RMB," CESifo Working Paper Series 5995, CESifo Group Munich.
    5. Woosik Moon & Yeongseop Rhee, 2012. "Asian Monetary Integration," Books, Edward Elgar Publishing, number 14191, April.
    6. Pontines, Victor & You, Kefei, 2015. "Asian Currency Unit (ACU), deviation indicators and exchange rate coordination in East Asia: A panel-based convergence approach," Japan and the World Economy, Elsevier, vol. 36(C), pages 42-55.
    7. Ogawa, Eiji & Kudo, Takeshi, 2007. "Asymmetric responses of East Asian currencies to the US dollar depreciation for reducing the US current account deficits," Journal of Asian Economics, Elsevier, vol. 18(1), pages 175-194, February.

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