توصیف سیاست نرخ ارز در شرق آسیا: تجدید نظر

Frankel and Wei [Frankel, J. A., & Wei, S.-J. (1994). Yen bloc or dollar bloc: Exchange rate policies of the East Asian economies. In I. Takatoshi & A. Krueger (Eds.), Macroeconomic linkages. Chicago: University of Chicago Press] developed and popularized a method for uncovering the implicit weights assigned to major international currencies constituting a currency basket. We extend the methodology in two dimensions: include regional competitive pressure and employ a vector autoregressive (VAR) model to overcome simultaneity bias. With these modifications, we confirm the prominent role of the US dollar in the exchange rate policy of East Asian economies beyond the short run. However, despite the high degree of commitment to nominal exchange rate stability prior to the crisis, fluctuations in most East Asian currencies are also significantly influenced by country specific shocks. The findings of the post-crisis period suggest that East Asian exchange rate regimes have become more diverse, with the crisis countries (except Malaysia) exercising even greater flexibility in their exchange rate management. Overall, there is weak evidence that the East Asian economies have been benchmarking their currencies towards regional competitors’ currencies over the longer term.

The choice of exchange rate regime is a perennial issue in international finance. Indeed, the frequent occurrences of financial crises and speculative attacks on the adjustable peg system underscore the need for a judicious choice of a country's exchange rate regime. Various East Asian countries such as China, Korea, Malaysia, Thailand and Singapore are known to have ever pegged to or are currently targeting broad baskets of currencies,1 not least because of their geographically diversified trade patterns. Under a basket peg system, the weights assigned to various currencies are usually not publicly announced and often subject to manipulation. In this paper, we investigate the exchange rate policy as practiced in East Asia. In a seminal paper, Frankel and Wei (1994) developed and popularized a method of uncovering the implicit weights assigned to major international currencies that constitute the currency basket. Each weight picks up both the direct effect of the major currency on the East Asian currency as well as the indirect effect of the major currency via the regional currencies. This regression method has been applied to the East Asian countries and the weight assigned to the US dollar is found to be way above that for the yen. As a result, the region has been characterized as a “dollar bloc” rather than a “yen bloc”. However, such de facto pegging of the regional currencies to the US dollar is blamed by some for contributing to the 1997 financial crisis by inviting excessive capital inflows and moral hazard problems (Frankel, 2003). Consequently, many economists have called for greater flexibility in the exchange rate movement of regional currencies ( Fischer, 2001 and Mishkin, 1999). Although nominal exchange rates in East Asia are more flexible in the immediate aftermath of the crisis, the variability of their fluctuations has by now diminished to the pre-crisis level. According to McKinnon and Schnable (2004), many East Asian countries have returned to a dollar peg system, termed “the East Asian Dollar Standard”. We note that the empirical evidence provided in both McKinnon and Schnable (2004) and Frankel and Wei (1994) are obtained by using high frequency data such as daily or weekly nominal exchange rates series. As such, their findings may not adequately describe longer-term exchange rate policy. After all, official intervention operations in the foreign exchange markets are typically carried out with the US dollar and this could affect the analysis involving high frequency data. Moreover, preceding research that uses the Frankel and Wei's methodology tends to focus only on the major international currencies such as the US dollar, the German mark and the Japanese yen (see, inter alia, Baig, 2001; Kawai & Akiyama, 2000). In view of the intense competition amongst the East Asian economies, questions remain as to whether they have been benchmarking their currencies towards regional competitors’ currencies and whether any shift in exchange rate policy has occurred following the crisis. The renewed focus on regional integration in trade and investment in recent years also highlight the need to explicitly consider regional currencies when determining East Asian exchange rate policy. This paper attempts to characterize the exchange rate policy in East Asia by extending the Frankel and Wei methodology in the following two dimensions. First, in addition to the G3 currencies, we incorporate in the currency basket a measure that captures the competitive pressure in the third market from regional neighbors. We explicitly include regional competitors’ currencies in the model in light of the export-orientated nature of East Asian economies and the real specter of competitive devaluation within the region. Second, in order to overcome simultaneity bias, we replace the regression model by a vector autoregressive (VAR) model that allows for endogenous interactions among the exchange rate variables. This model is applied to monthly data of the following eight countries: China, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. By assessing the relative sensitivities of these regional currencies to structural shocks to the US dollar, the yen, the regional competitors’ currencies and the home currency, we identify the exchange rate policy as practiced in East Asia. To anticipate the main findings of this paper, we confirm that the US dollar plays a dominant role even in longer-term exchange rate policy. Interestingly, with the exception of Malaysia, the influence of shocks to the home currency is far from negligible and is generally greater than that to the yen and the regional competitors’ currencies. Hence, most East Asian economies maintained a fair degree of exchange rate independence before the crisis, despite the high degree of commitment to exchange rate stability. By comparison to the pre-crisis period, the exchange rate regimes in the region are more diverse post-crisis. At one extreme, countries like China and Malaysia adopt a rigid dollar peg; at the other, the crisis countries of Indonesia, Korea, Philippines and Thailand retain a much greater degree of exchange rate flexibility with a concomitant reduction in the role of the US dollar. Overall, the extent of benchmarking towards regional competitor currencies appears to be small and no increase is detected following the crisis. The balance of this paper is organized as follows: the next section discusses the extensions to the Frankel-Wei regression model. Section 3 describes the econometric methodology used to model exchange rate dynamics. Empirical results are presented and discussed in Section 4. Section 5 concludes with some remarks on future exchange rate management.

In this paper, we study the exchange rate policy in East Asian countries by building up on the method developed by Frankel and Wei (1994) in two important directions. We explicitly include regional competitive pressure and employ a VAR model of nominal exchange rates. The VAR model allows for endogenous interactions among the exchange rates of the US, Japan, East Asian competitors and the local currency. The key findings of this paper can be summarized as follows. We confirm that the US dollar plays a prominent role for exchange rate determination in the region even beyond the short-run. Concomitantly, the yen plays a minimal role. Thus, the region can hardly be viewed as a yen bloc as proposed by Kwan (2001), Ogawa and Ito (2000) and others. Interestingly, shocks to the domestic currency are generally of greater importance than those to the yen and the regional competitor currency. That is, all East Asian countries maintain a fair degree of independence in exchange rate policy making prior to the crisis. In comparison, the exchange rate regimes in the region are more varied after the crisis. China and Malaysia have until recently adopted a fixed dollar exchange rate. By contrast, the crisis countries of Indonesia, Korea, the Philippines and Thailand have chosen even greater flexibility in exchange rate management. Along with this change, the role of the US dollar declines, while that for the yen and competitor currency remains largely the same for these countries. This result is broadly consistent with Eichengreen (2001) where the extent of shocks to the currency market that is being absorbed by the exchange rate is shown to be higher for the crisis countries post-crisis. Overall, there is weak evidence that the East Asian economies have been benchmarking their currencies towards regional competitors’ currencies over the longer term. Recently, there has been renewed focus on developing regional exchange rate cooperation in order to stabilize intra-regional exchange rates (Kawasaki & Ogawa, 2006; Ogawa, Ito, & Sasaki, 2004). In this regard, some have proposed an EMS-type system that allows for regular realignments and that uses an Asian currency unit – a composite of regional currencies and the yen – for benchmarking (Wilson, 2004 and Wyplosz, 2001). Indeed, the Asian Development Bank has recently announced plans to launch such an Asian currency unit to be used as a benchmark for monitoring the movements of regional currencies. Ogawa and Shimizu (2005) also advocates the use of deviation indicators constructed from the Asian currency unit as additional tools for the surveillance of exchange rate policy in East Asia. Nevertheless, it is well known that the economic linkages between the region and other industrialized countries of the world remain vital, notwithstanding greater regional integration. Consequently, benchmarking towards regional currencies (including the yen) alone will not stabilize the effective exchange rates of the regional economies. Rather, policy makers in East Asia will be confronted by the transfer of swings in major currencies into relative trade competitiveness. Besides, the fluidity of the economic environment in East Asia such as the economic emergence of China would call for frequent adjustments (Hefeker & Nabor, 2005) to the ERM-type system which generates a cost in terms of regime credibility. It is thus not clear that such a regional exchange rate arrangement is superior to a system of flexible exchange rate management whereby each country benchmarks to its own basket of intra-regional as well as extra-regional currencies. Should the trade patterns of the East Asian economies converge and intra-regional exchange rate stability become more important than stability vis-à-vis major currencies, adopting a common currency basket based on the Asian currency unit could then be the way forward for future exchange rate management.