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

Author

Listed:
  • Baharumshah, Ahmad Zubaidi
  • Chan, Tze-Haw
  • Aggarwal, Raj

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.

Suggested Citation

  • Baharumshah, Ahmad Zubaidi & Chan, Tze-Haw & Aggarwal, Raj, 2006. "The Changing Dynamics of the East Asian Real Exchange Rates after the Financial Crisis: Further Evidence on Mean Reversion," MPRA Paper 6090, University Library of Munich, Germany, revised 22 Nov 2007.
    • Handle: RePEc:pra:mprapa:6090
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    File URL: https://mpra.ub.uni-muenchen.de/6090/1/MPRA_paper_6090.pdf
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    References listed on IDEAS

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    Cited by:

    1. Salah A. Nusair & Naser I. Abumustafa, 2012. "Recursive Cointegration Analysis of Purchasing Power Parity: An Application to Asian Countries," The American Economist, Sage Publications, vol. 57(2), pages 196-209, November.

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    More about this item

    Keywords

    Purchasing power parity; Panel unit root tests; Asian financial crisis;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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