Munich Personal RePEc Archive

The Changing Dynamics of the East Asian Real Exchange Rates after the Financial Crisis: Further Evidence on Mean Reversion

Baharumshah, Ahmad Zubaidi and Chan, Tze-Haw and Aggarwal, Raj (2006): The Changing Dynamics of the East Asian Real Exchange Rates after the Financial Crisis: Further Evidence on Mean Reversion.

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Abstract

Using an improved statistical methodology including tests designed for heterogeneous panels, this paper tests for mean reversion in monthly US Dollar based real exchange rates for nine East Asian countries, including those that were severely affected by the 1997 Asian financial crises. The empirical results reveals mean reversion in real Asian exchange rates is a feature of the post-crises sub-period (1997-2005) but not of the pre-crises sub-period (1981-1996). Additionally, we make a point that a faster speed of convergence to PPP and lower adjustment half-lives for real exchange rates compared to those reported for major industrialized country currencies and especially so for the post-crises period in Asia.

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