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The usual suspects? productivity and demand shocks and Asia-Pacific real exchange rates

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  • Menzie D. Chinn

Abstract

The evidence for a productivity-based explanation for real exchange rate behavior of East Asian currencies is examined. Using sectoral output and employment data, relative prices and relative productivities are calculated for China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand Time series regressions of the real exchange rate on relative prices indicate a role for relative prices for Indonesia, Japan and Korea. When examining real exchange rates and relative productivity ratios, one finds a relationship for Japan, Malaysia, the Philippines. Only when augmenting the regressions with real oil prices are significant relationships obtained for Indonesia and Korea. Panel regression results are slightly more supportive of a relative price view of real exchange rates. However, the panel regressions incorporating productivity variables, as well as other demand side factors, are less encouraging, except for a small subset of countries (Indonesia, Japan, Korea, Malaysia and the Philippines). Surprisingly, government spending does not appear to be a determinant of real exchange rates in the region.

Suggested Citation

  • Menzie D. Chinn, 1997. "The usual suspects? productivity and demand shocks and Asia-Pacific real exchange rates," Pacific Basin Working Paper Series 97-06, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfpb:97-06
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    More about this item

    Keywords

    Foreign exchange rates; Asia; Productivity; East Asia;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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