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On Determinants of the Yen Weight in the Implicit Basket System in East Asia

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  • Takatoshi Ito
  • Keisuke Orii

Abstract

After the Asian currency crisis, most Asian economies have adopted managed float regimes, with notable exception of China, Hong Kong, and Malaysia. Various studies have examined the weights of the dollar, the yen, and the euro, regarding floating is loosely managed with reference to the basket currency system. However, results are mixed, in that in some periods, the yen weight seems to be higher in some countries, and in some other periods, the Asian currencies seem to have gone back to the dollar peg. This paper seeks the determinants of the yen weight in Asian currencies. It is found that the yen weight tends to increase when the yen depreciates and when the domestic interest rates rise. The yen weight tends to decrease when the US interest rate rises. Asymmetry is observed among coefficients of variables between the lower and higher yen periods. In addition, the yen weight is less susceptible to the overall position of the US dollar vis-a-vis major currencies. It should also be noted that the peculiarity among countries seems large in handling the currency weights in the basket.

Suggested Citation

  • Takatoshi Ito & Keisuke Orii, 2006. "On Determinants of the Yen Weight in the Implicit Basket System in East Asia," Discussion papers 06020, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:06020
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    File URL: https://www.rieti.go.jp/jp/publications/dp/06e020.pdf
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    References listed on IDEAS

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    1. Eiji Ogawa & Lijian Sun, 2001. "How Were Capital Inflows Stimulated under the Dollar Peg System?," NBER Chapters,in: Regional and Global Capital Flows: Macroeconomic Causes and Consequences, NBER-EASE Volume 10, pages 151-190 National Bureau of Economic Research, Inc.
    2. Jeffrey Frankel & Sergio Schmukler & Luis Serven, 2000. "Verifiability and the Vanishing Intermediate Exchange Rate Regime," NBER Working Papers 7901, National Bureau of Economic Research, Inc.
    3. Ogawa, Eiji & Ito, Takatoshi, 2002. "On the Desirability of a Regional Basket Currency Arrangement," Journal of the Japanese and International Economies, Elsevier, vol. 16(3), pages 317-334, September.
    4. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
    5. Ito, Takatoshi & Ogawa, Eiji & Sasaki, Yuri Nagataki, 1998. "How Did the Dollar Peg Fail in Asia?," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 256-304, December.
    6. Ronald I. McKinnon, 2002. "After the Crisis, the East Asian Dollar Standard Resurrected: An Interpretation of High-Frequency Exchange Rate Pegging," World Scientific Book Chapters,in: Monetary And Financial Management In Asia In The 21st Century, chapter 2, pages 21-77 World Scientific Publishing Co. Pte. Ltd..
    7. Takatoshi Ito & Anne O. Krueger, 1994. "Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3," NBER Books, National Bureau of Economic Research, Inc, number ito_94-1, January.
    8. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters,in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
    9. John Williamson, 2000. "Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa60.
    10. Takatoshi Ito & Anne O. Krueger, 2001. "Regional and Global Capital Flows: Macroeconomic Causes and Consequences, NBER-EASE Volume 10," NBER Books, National Bureau of Economic Research, Inc, number ito_01-1, January.
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