Exchange rate management and capital inflows in selected East Asian countries

Taguchi, Hiroyuki (2003): Exchange rate management and capital inflows in selected East Asian countries. Published in: Journal of International Development Studies , Vol. 12, No. 1 (June 2003): pp. 49-61.

Abstract

Exchange rate management has become a hot debate in academic circles that examines the merits of fixed versus floating regimes. The 1997-98 Asian crisis has refocused attention on the exchange rate management of the East Asian countries. Most views expressed criticize the pre-crisis U.S. dollar-pegged-rate regime as one cause of the crisis. This article examines exchange rate management in the selected East Asian countries from the viewpoint of stability of capital flows. The study’s main findings are as follows: First, the significantly large super-risk premiums against the U.S. were found in the pre-crisis Asian sample countries with the de facto dollar peg regimes. Second, a regression analysis verified the correlation between the super risk premium and the short-term capital inflow. Third, a simulation analysis showed that an alternative inflation-slid management would have had a depressing effect on capital inflows while the basket peg system would not have.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate management, capital inflows, East Asian Countries
• Subjects: F - International Economics > F3 - International Finance > F31 - Foreign Exchange; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements

References

ADB (Asian Development Bank). 1998. Asian Development Outlook 1998. Manila: pp. 23-37.

Davidson, R., and J. MacKinnon. 1993. Estimation and Inference in Econometrics. New York: Oxford University Press.

Frankel, Jeffrey A., and S. J. Wei. 1994. “Yen Bloc or Dollar Bloc? Exchange Rate Policies in the East Asian Economies.” In Takatoshi Ito and Anne Krueger, eds., Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flow. NBER-East Asia Seminar on Economics 3, University of Chicago Press.

IMF (International Monetary Fund). 1998. World Economic Outlook: May 1998. Washington D.C: pp. 3-7.

IMF. 1999. “Exchange Rate Arrangements and Currency Convertibility: Developments and Issues.” World Economic and Financial Surveys. Washington D.C: pp. 23-46.

IMF. 2000. Direction of Trade Statistics Yearbook (DTSY). Washington D.C.

IMF. 2001. International Financial Statistics (IFS). July 2001, CD-ROM, Washington D.C.

Kawai, Masahiro. 1997. “East Asia currency turbulence: Implications of financial system fragility.” A paper prepared for a seminar at the World Bank.

Matsuura, Katsumi, and Colin Mckenzie. 2001. Eviews niyoru Keiryou Keizai Bunseki (Econometric Analysis by Eviews). Tokyo: Toyo Keizai Shinpo Sha.

Mckinnon, Ronald. 2000. “The East Asian Dollar Standard, Life after Death?” Economic Notes 29 (1, February), pp. 31-82.

Mckinnon, Ronald. 2001. “After the Crisis, the East Asian Dollar Standard Resurrected: an Interpretation of High-frequency Exchange Rate Pegging.” In Joseph E. Stiglitz and Shahid Yusuf, eds., Rethinking the East Asian Miracle (Chapter 5). Washington, D.C: World Bank.

Ogawa, Eiji, and Lijian Sun. 2001. “How were capital inflows stimulated under the dollar peg system?” In Takatoshi Ito and Anne O. Krueger, eds., Regional and Global Capital Flows: Macroeconomic Causes and Consequences. Chicago: University of Chicago Press.

Ohno, Kenichi. 1999. “Exchange Rate Management in Developing Asia: Reassessment of the Precrisis Soft Dollar Zone.” ADBI Working Paper 1 (January). Tokyo: Asian Development Bank Institute.

World Bank. 1998. East Asia: The Road to Recovery. Washington D.C: pp. 1-18.

World Bank. 2000. East Asia: Recovery and Beyond. Washington D.C: pp. 19-43.