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Exchange rate management and trade balance in selected East Asian countries

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  • Taguchi, Hiroyuki

Abstract

Exchange rate management has become a hot topic in academic circles examining the merits of fixed versus floating regimes. The 1997-98 Asian crisis has refocused attention on the exchange rate management of East Asian countries. Most views expressed are critical of the pre-crisis US dollar peg regime, citing it as one cause of the crisis.This article evaluates the pre-crisis US dollar peg regime in the selected East Asian countries by examining its negative effect on trade balance through currency appreciation. The main findings of the study are as follows: First, a significantly large appreciation of real effective exchange rates was found in the selected East Asian countries under the precrisis US dollar peg regime. Second, a regression analysis verified the correlation between real effective exchange rates and trade balances. Third, a simulation analysis showed that the appreciation of real effective exchange rates had a clearly negative effect on trade balances. The strategic implication of our findings is how important the stabilizing of the real effective exchange rate is in exchange rate management.

Suggested Citation

  • Taguchi, Hiroyuki, 2002. "Exchange rate management and trade balance in selected East Asian countries," MPRA Paper 63638, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:63638
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    References listed on IDEAS

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    1. Takatoshi Ito & Mr. Tamim Bayoumi & Mr. Peter Isard & Mr. Steven A. Symansky, 1996. "Exchange Rate Movements and Their Impact on Trade and Investment in the APEC Region," IMF Occasional Papers 1996/011, International Monetary Fund.
    2. Kawai, Masahiro, 2002. "Exchange Rate Arrangements in East Asia: Lessons from the 1997-98 Currency Crisis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 167-204, December.
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    4. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, pages 295-333, National Bureau of Economic Research, Inc.
    5. Taguchi, Hiroyuki, 1998. "Exchange rate movements and trade balances in selected ASEAN countries," MPRA Paper 63784, University Library of Munich, Germany.
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    Cited by:

    1. Taguchi, Hiroyuki, 2005. "The exchange rate managements in crisis-experienced emerging market economies after the 1990s," MPRA Paper 63788, University Library of Munich, Germany.

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    More about this item

    Keywords

    exchange rate management; trade balance; East Asian Countries;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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