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The AMU Deviation Indicators Based on the Purchasing Power Parity and Adjusted by the Balassa-Samuelson Effect

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  • Eiji Ogawa
  • Zhiqian Wang

Abstract

This paper investigates how the AMU Deviation Indicators for surveillance measurements among East Asian currencies are improved by changing their benchmark rates from the constant rates in 2000-2001 to time-varying rates based on their Purchasing Power Parities (PPPs). The Consumer Price Indexes (CPIs) are used to calculate their PPPs as a time-varying benchmark for the AMU Deviation Indicators. Because the CPIs include prices of non-tradable goods, the PPPs based on the CPIs have a problem related with the Balassa-Samuelson effect. For the reason, the PPPs adjusted by the Balassa-Samuelson effect should be used to calculate the AMU Deviation Indicators when the CPIs are used as price data. This paper compares the two types of the PPP-based AMU Deviation Indicators and the PPP-based AMU Deviation Indicators adjusted by the Balassa-Samuelson effect. We conclude that both the PPP- based AMU Deviation Indicators and the PPP-based AMU Deviation Indicators adjusted by the Balassa-Samuelson effect are also useful in making surveillance over overvaluation or undervaluation of the intra-regional exchange rates of East Asian currencies.

Suggested Citation

  • 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.
    • Handle: RePEc:hst:ghsdps:gd12-255
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd12-255.pdf
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    References listed on IDEAS

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    Cited by:

    1. Pontines, Victor, 2015. "How useful is an Asian Currency Unit (ACU) index for surveillance in East Asia?," Economic Systems, Elsevier, vol. 39(2), pages 269-287.
    2. OGAWA Eiji & Zhiqian WANG, 2013. "How Did the Global Financial Crisis Misalign East Asian Currencies?," Discussion papers 13096, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Asian Monetary Unit; AMU Deviation Indicators; Purchasing Power Parity; Balassa-Samuelson Effect; Regional Monetary Cooperation;
    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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