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Amu Deviation Indicators Based On Purchasing Power Parity And Adjusted By Balassa–Samuelson Effect

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Listed:
  • OGAWA EIJI

    (Graduate School of Commerce and Management, Hitotsubashi University and Faculty Fellow of Research Institute of Economy, Trade and Industry, Japan)

  • ZHIQIAN WANG

    (Graduate School of Commerce and Management, Hitotsubashi University, Japan)

Abstract

This study investigates how the Asian Monetary Unit (AMU) deviation indicators for surveillance of East Asian currencies are improved by changing their benchmark rates from the constant 2000–2001 rates to time-varying ones based on purchasing power parities (PPPs). Consumer price indexes (CPIs) are used to calculate PPPs as a time-varying benchmark for AMU deviation indicators. Because CPIs include the prices of non-tradable goods, PPPs based on CPIs have a problem relating to the Balassa–Samuelson effect. Therefore, the PPPs adjusted by the Balassa–Samuelson effect should be used for calculation when CPIs are used for price data. This study compares the PPP-based AMU deviation indicator with the one adjusted by the Balassa–Samuelson effect. We conclude that both the indicators are useful for surveillance of overvaluation or undervaluation of intra-regional exchange rates of East Asian currencies.

Suggested Citation

  • Ogawa Eiji & Zhiqian Wang, 2013. "Amu Deviation Indicators Based On Purchasing Power Parity And Adjusted By Balassa–Samuelson Effect," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-22.
    • Handle: RePEc:wsi:gjexxx:v:02:y:2013:i:02:n:s2251361213500080
    DOI: 10.1142/S2251361213500080
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    References listed on IDEAS

    as
    1. Eiji Ogawa & Junko Shimizu, 2005. "A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia," Discussion papers 05017, Research Institute of Economy, Trade and Industry (RIETI).
    2. Eiji Ogawa & Junko Shimizu, 2011. "Asian Monetary Unit and Monetary Cooperation in Asia," Governance Working Papers 23261, East Asian Bureau of Economic Research.
    3. Ogawa, Eiji & Shimizu, Junko, 2011. "Asian Monetary Unit and Monetary Cooperation in Asia," ADBI Working Papers 275, Asian Development Bank Institute.
    4. Takatoshi Ito & Anne O. Krueger, 1999. "Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues," NBER Books, National Bureau of Economic Research, Inc, number ito_99-1.
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    6. Eiji Ogawa & Junko Shimizu, 2011. "Asian Monetary Unit and Monetary Cooperation in Asia," Macroeconomics Working Papers 23261, East Asian Bureau of Economic Research.
    7. Takatoshi Ito & Anne O. Krueger, 1999. "Introduction to "Changes in Exchange Rates in Rapidly Development Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7)"," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues, pages 1-8, National Bureau of Economic Research, Inc.
    8. Eiji Ogawa & Junko Shimizu, 2011. "Asian Monetary Unit and Monetary Cooperation in Asia," Finance Working Papers 23261, East Asian Bureau of Economic Research.
    9. OGAWA Eiji & YOSHIMI Taiyo, 2009. "Analysis on β and σ Convergences of East Asian Currencies," Discussion papers 09018, Research Institute of Economy, Trade and Industry (RIETI).
    10. Eiji Ogawa, 2010. "Regional Monetary Coordination in Asia after the Global Financial Crisis: Comparison in Regional Monetary Stability between ASEAN+3 and ASEAN+3+3," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(5), pages 837-858, June.
    11. Eiji Ogawa & Junko Shimizu, 2010. "AMU and Monetary Cooperation in Asia," Global COE Hi-Stat Discussion Paper Series gd10-153, Institute of Economic Research, Hitotsubashi University.
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    More about this item

    Keywords

    Asian monetary unit; AMU deviation indicators; purchasing power parity; Balassa–Samuelson effect; regional monetary cooperation; F31; F33; F36;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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