On the won and other East Asian currencies

✍ Scribed by Menzie D. Chinn

• Publisher: John Wiley and Sons
• Year: 1999
• Tongue: English
• Weight: 278 KB
• Volume: 4
• Category: Article
• ISSN: 1076-9307
• DOI: 10.1002/(sici)1099-1158(199904)4:2<113::aid-ijfe95>3.0.co;2-t

✦ Synopsis

Five East Asian currencies -the Indonesian rupiah, Korean won, Singapore dollar, Taiwanese dollar and the Thai baht -are modeled in the framework of a monetary specification augmented by the relative price of non-tradables. This relative price variable proxies for the Balassa -Samuelson effect in East Asian real exchange rates identified in previous studies. All of the currencies fit the long run implications of various types of monetary models, according to Johansen multivariate co-integration tests. Exchange rates do the bulk of adjustment toward equilibrium, except in the cases of the Thai baht and the New Taiwan dollar. For these currencies, interest rates and money supplies move to restore equilibrium. In ex post simulations, the out-of-sample fit of the estimated models is relatively good for the won, Singapore and New Taiwan dollars, and for the baht, although in no case is the exact magnitude and timing of the currency crashes predicted. The estimated model completely fails to track the rupiah out-of-sample.