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Stabilization of Effective Exchange Rates Under Common Currency Basket Systems

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  • Eiji Ogawa
  • Junko Shimizu

Abstract

We investigate the extent to which a common currency basket peg would stabilize effective exchange rates of East Asian currencies. We use an AMU (Asian Monetary Unit), which is a weighted average of ASEAN10 plus 3 (Japan, China, and Korea) currencies, as a common currency basket to investigate the stabilization effects. We compare our results with another result on stabilization effects of the common G3 currency (the US dollar, the Japanese yen, and the euro) basket in the East Asian countries (Williamson (2005)). We obtained the following results: first, the AMU peg system would be more effective in reducing fluctuations of the effective exchange rates as more countries applied the AMU peg system in East Asia. Second, the AMU peg system would more effectively stabilize the effective exchange rates than a common G-3 currency basket peg system for four (Indonesia, the Philippines, South Korea and Thailand) of the seven countries. The results suggest that the AMU basket peg would be useful for the East Asian countries whose trade weights on Japan are relatively higher than others.

Suggested Citation

  • Eiji Ogawa & Junko Shimizu, 2006. "Stabilization of Effective Exchange Rates Under Common Currency Basket Systems," NBER Working Papers 12198, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12198
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    References listed on IDEAS

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    14. Eiji Ogawa & Junko Shimizu, 2006. "AMU Deviation Indicator for Coordinated Exchange Rate Policies in East Asia and its Relation with Effective Exchange Rates," Discussion papers 06002, Research Institute of Economy, Trade and Industry (RIETI).
    15. Eiji Ogawa & Junko Shimizu, 2006. "AMU Deviation Indicators for Coordinated Exchange Rate Policies in East Asia and their Relationships with Effective Exchange Rates," The World Economy, Wiley Blackwell, vol. 29(12), pages 1691-1708, December.
    16. 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).
    17. Eiji Ogawa & Junko Shimizu, 2006. "AMU Deviation Indicator for Coordinated Exchange Rate Policies in East Asia and its Relation with Effective Exchange Rates," Hi-Stat Discussion Paper Series d05-131, Institute of Economic Research, Hitotsubashi University.
    18. 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. Charles Adams & Hwee Chow, 2009. "Asian Currency Baskets: An Answer in Search of a Question?," Open Economies Review, Springer, vol. 20(3), pages 403-423, July.
    2. Benjamin Keddad, 2013. "Assessing Asian Exchange Rates Coordination under Regional Currency Basket System," AMSE Working Papers 1345, Aix-Marseille School of Economics, France, revised Sep 2013.
    3. Naoyuki Yoshino & Sahoko Kaji & Tamon Asonuma, 2014. "Dynamic Transition of Exchange Rate Regime in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 22(3), pages 36-55, July.
    4. Aihua Wang & Faruk Balli & Xiumin Li, 2015. "Possible Best Currency Basket Selection from the Perspective of Real Effective Exchange Rate," Pacific Economic Review, Wiley Blackwell, vol. 20(4), pages 635-650, October.
    5. Jo-Hui Chen & Yen-Po Fang, 2011. "A study on the modified components of Asian Currency Unit: an application of the Artificial Neural Network," Quality & Quantity: International Journal of Methodology, Springer, vol. 45(2), pages 329-347, February.
    6. Shingo Watanabe & Masanobu Ogura, 2006. "How Far Apart Are Two ACUs from Each Other? : Asian Currency Unit and Asian Currency Union," Bank of Japan Working Paper Series 06-E-20, Bank of Japan.
    7. Benjamin Keddad, 2013. "Exchange rate coordination in Asia under regional currency basket systems," Economics Bulletin, AccessEcon, vol. 33(4), pages 2913-2929.
    8. 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.
    9. Eiji Ogawa & Zhiqian Wang, 2012. "The AMU Deviation Indicators Based on the Purchasing Power Parity and Adjusted by the Balassa-Samuelson Effect," Global COE Hi-Stat Discussion Paper Series gd12-255, Institute of Economic Research, Hitotsubashi University.
    10. Yoshino, Naoyuki & Kaji, Sahoko & Tamon, Asonuma, 2014. "Dynamic Transition of the Exchange Rate Regime in the People’s Republic of China," ADBI Working Papers 476, Asian Development Bank Institute.
    11. Naoyuki Yoshino & Sahoko Kaji & Tamon Asonuma, 2016. "Dynamic Effects of Changes in the Exchange Rate System," Asian Development Review, MIT Press, vol. 33(1), pages 111-161, March.
    12. Hwee Kwan Chow & Peter Nicholas Kriz & Roberto S. Mariano & Augustine H. H. Tan, 2010. "Monetary Policy Cooperation To Support Asian Economic Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 55(01), pages 83-101.
    13. OGAWA Eiji & Zhiqian WANG, 2012. "The AMU Deviation Indicators Based on the Purchasing Power Parity and Adjusted by the Balassa-Samuelson Effect," Discussion papers 12078, Research Institute of Economy, Trade and Industry (RIETI).
    14. Watanabe, Shingo & Ogura, Masanobu, 2010. "How far apart are the two ACUs from each other? Asian currency unit and Asian currency union," Emerging Markets Review, Elsevier, vol. 11(2), pages 152-172, June.

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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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