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Analysis on ƒÀ and ƒÐ Convergences of East Asian Currencies

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  • Eiji Ogawa
  • Taiyo Yoshimi

Abstract

This paper investigates recent diverging trends among East Asian currencies as well as recent movements of the weighted average value of East Asian currencies (Asian Monetary Unit: AMU) and deviations (AMU Deviation Indicators) of the East Asian currencies from the average values by ƒÀ and ƒÐ convergence methods. Our empirical analysis shows that linkages with the US dollar have been weakening since 2001 or 2002 for some of the East Asian countries. On the other hand, the monetary authority of China continues stabilizing the exchange rate of the Chinese yuan against the US dollar even though it announced its adoption of a currency basket system. It is found that the weighted average of East Asian currencies has been appreciating against the US dollar while depreciating against the currency basket of the US dollar and the euro until the global financial crisis in 2008. Also, the analytical results on ƒÀ and ƒÐ Convergences show that deviations among the East Asian currencies have been widening @in recent years, reflecting the fact that these countries f monetary authorities are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intra-regional exchange rates in East Asia.

Suggested Citation

  • Eiji Ogawa & Taiyo Yoshimi, 2009. "Analysis on ƒÀ and ƒÐ Convergences of East Asian Currencies," Global COE Hi-Stat Discussion Paper Series gd08-049, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd08-049
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd08-049.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    3. Eiji OGAWA & Taiyo YOSHIMI, 2008. "Widening Deviation among East Asian Currencies," Discussion papers 08010, Research Institute of Economy, Trade and Industry (RIETI).
    4. Takatoshi Ito & Anne O. Krueger, 1994. "Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows," NBER Books, National Bureau of Economic Research, Inc, number ito_94-1, October.
    5. 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, pages 295-333, National Bureau of Economic Research, Inc.
    6. Kawai, Masahiro & Akiyama, Shigeru, 2000. "Implications of the currency crisis for exchange rate arrangements in emerging East Asia," Policy Research Working Paper Series 2502, The World Bank.
    7. Eiji Ogawa & Michiru Sakane, 2006. "The Chinese Yuan after the Chinese Exchange Rate System Reform," Discussion papers 06019, Research Institute of Economy, Trade and Industry (RIETI).
    8. Eiji Ogawa & Michiru Sakane, 2006. "Chinese Yuan after Chinese Exchange Rate System Reform," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(6), pages 39-57, November.
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    Cited by:

    1. 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.

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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