Discussion Paper No. 66
Real and Financial Linkage in Pacific-Asia
by
Toshie IKENAGA
Economic Planning Agency
October 1996
Economic Research Institute
Economic Planning Agency
Tokyo, Japan
The views expressed here are the author’s and do not
represent those of the Economic Planning Agency
i
Abstract
The "deepening" of economic integration in Pacific-Asia has been promoted
by the interaction between growing real and financial transactions.
The deepening of financial linkage would enhance the possibility that real
interest parity might hold through arbitrage transactions with greater capital
mobility. This paper tries to examine influential power of the Japanese yen and
interest rate in financial linkage in Pacific-Asia in comparison with the US dollar
or Deutsche mark.
In concluding, the empirical analysis suggests that the Japanese yen
doesn’t seem to be treated as the target currency nor is the Japanese real interest
rate taken into account in arbitrage transactions very much. Most Pacific-Asian
currencies are officially linked to either the US dollar or a trade-weighted basket.
All countries assign the greatest weight to the US dollar. In the 1990s, however,
some countries such as Korea and Singapore seem to reduce weights on the US
dollar and increase weights on the Japanese yen or the Deutsche mark in
comparison with the latter of the 1980s. For every country, the nominal and real
exchange rates against the Japanese yen seem less stable and more volatile than
those against the US dollar and even against the Deutsche mark for the most
period since the latter half of the 1980s. In the 1990s, while every currency
appreciated in real terms against the US dollar, none of them depreciated so much
in real terms as nominal terms against the Japanese yen. These differences are
however hardly statistically significant. Neither the Japanese nor the US real
interest rate individually seems to have dominant influence on the Pacific-Asian
interest rates and correlation varies according to country and period.
iii
R e a l a n d F i n a n c i a l l i n k a g e i n P a c i f i c - A s i a
Influential power of the Japanese yen and interest rate in
arbitrage transactions
January 1996
Toshie Ikenaga
Economic Planning Agency
v
Real and Financial Linkage in Pacific-Asia
Table of Contents
I. INTRODUCTION
Capital mobility and real interest parity
II. INFLUENTIAL POWER OF THE JAPANESE YEN IN EXCHANGE RATE MOVEMENT IN
PACIFIC-ASIA
1. Exchange rate system in each country
Weights on the US dollar, the Japanese yen and the Deutsche
mark in Pacific-Asia
2. Nominal exchange rate fluctuation
3. Real exchange rate movement
Persistence of nominal and real exchange rate changes
III. CORRELATION IN INTEREST RATES
IV. CONCLUSION
REFERENCE
TABLES
1. Share in intra-regional trade 2. Exchange rate Regime in Pacific-Asian countries 3-1. Implicit basket weights (based on SFR) 3-2. Implicit basket weights (based on pound) 4. Average and standard deviation of changes in nominal
exchange rates 5. Average and standard deviation of changes in real
exchange rates 6. Autoregression coefficients for changes in nominal and real
exchange rates 7. Real money market rates
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I. Introduction
Pacific-Asian economies have succeeded in economic growth by pursuing
outward- or export-oriented strategies. They have benefitted from free trade and
the United States has offered them a huge market. Their remarkable economic
growth in the 1980s made them one of the most promising economic centers. Intra-
regional trade and direct foreign investment in Asia have been increasing rapidly
and are forecasted to continue to do so.
Table 1 shows growing share of intra-regional trade for 12 economies. The
share of intra-regional exports and imports within the Pacific-Asian region
increased from 37% (excluding China) in 1980 to 45% in 1992, from 37% (excluding
China) in 1980 to 52% in 1992 respectively. They reached somewhat lower level
than that within EU (50 - 60%). It is important to stress, however, that the EU has
had a preferential trading arrangement since 1958, whereas there is no regional
preferential trading agreement in Asia. In fact, the share of intra-regional trade
in the total imports of Hong Kong (75%), Malaysia (63%), China (61%), Thailand
(58%), Singapore (56%) and Indonesia (53%) in 1992 exceeded the half of the total,
which is comparable to that of the EU average. In addition to the already-
considerable increase in intra-regional transactions in Pacific-Asia, economic
integration in Europe and the Americas may encourage them to form a similar
internal market which would ensure the free flow of goods and services.
The "deepening" of economic integration has been driven by the growth of
foreign direct investment, which has contributed to above mentioned growth in
intra-regional trade as well as contributed to the deepening interdependence in
capital transactions. Another driving force for the deepening of economic
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interdependence has been the growth of financial flows within the region due to
more liberalized investment regimes and the evolution of capital market. Thus the
formation of an integrated market is likely to promote and be promoted by further
integration in financial area.
The deepening of financial linkage would enhance the possibility that real
interest parity - i.e. domestic and foreign real interest rates tend to be equalized
after being adjusted by expected changes in real exchange rates - might hold
through arbitrage transactions with greater capital mobility.1 This paper tries
to examine influential power of the Japanese yen and interest rate in financial
linkage in Pacific-Asia in comparison with the US dollar or Deutsche mark by
asking a question, "Are the Japanese yen and interest rate the target of arbitrage
transactions by Pacific-Asian economies?". The sample periods are divided into
four in accordance with exchange rate movement to see how influential power of
currencies changed (see Appendix): (1)1980.01 - 1984.12 (strong US dollar/weak
Japanese yen), (2)1985.01 - 1988.12 (strong yen/weak dollar), (3)1989.01 - 1990.04
(strong dollar/weak yen), (4)1990.05 - (strong yen/weak dollar). Pacific-Asia here
includes the economies of Japan, Korea, Singapore, Hong Kong, Malaysia, Thailand,
Indonesia, the Philippines, China, Australia and New Zealand.2
1 Real interest parity implies ex-post real rates of return should be equalized globally after being adjusted by expected changes in real exchange rates in an integrated financial and capital market. Therefore, real interest parity doesn’t hold, when capital mobility is imperfect. There are other possibilities that real interest parity doesn’t hold, e.g. when there is a risk premium or some erratic or irrational changes in people’s expectation. 2 Taiwan is excluded because its economic data are excluded from the United Nations and other statistical sources, making data compatibility and availability difficult. While some authors include the United States and Canada in the Pacific- As ian reg ion , th i s paper f o cuses on "As ia " ( i n c lu d in g g eo g r a p h i c a l ly - pr ox i m a t e
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The outline of the paper is as follows. Section II focuses on the influence
of the Japanese yen on exchange rate movement in Pacific-Asian economies. First,
after surveying the exchange rate system implicit weights assigned to major
currencies are estimated. Second, nominal exchange rate development is
presented. Third, movement in real exchange rates in relation to real (trade)
linkage is examined. Section III empirically tests the influence of Japanese
interest rate on Pacific-Asian interest rate movement in comparison with that of
the US rate.
In concluding, the empirical analysis suggests that the Japanese yen is not
the target currency in the Pacific-Asian region nor are Pacific-Asian interest
rates correlated with the Japanese interest rate more than with the US rate.
Although Japan increased its share of the region’s trade in the latter half of the
1980s, the Japanese yen seems far behind the US dollar in being treated as the
key currency. Neither the Japanese nor the US interest rate individually seems
to have dominant influence on the Pacific-Asian interest rates and correlation
varies according to country and period.
Capital mobility and real interest parity
The Pacific-Asian region as a whole has been generally deregulating
domestic financial markets and removing or relaxing restrictions on international
capital movements. Some research has shown that a greater degree of capital
mobility with financial liberalization dampened deviations from interest rate
Australia and New Zealand).
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parity.3 In addition, mobility of physical capital in the form of foreign direct
investment is remarkable: Since the appreciation of the yen in 1985, Japanese
foreign direct investment (FDI) into Pacific-Asian countries has grown rapidly.
Asian NIEs have emerged in the 1980s as increasingly-important foreign investors
themselves, particularly in the Pacific-Asian region. Accordingly, the shares of
inflows of FDI from some Asian countries (from Japan in parentheses) are quite
high: Malaysia 72.9%(31.1%), Thailand 69.2%(44.1%), Indonesia 41.7%(16.3%) and the
Philippines 59.8%(19.7%).4 It is interesting to note that Japanese transnational
corporations have adopted regional core network strategies. This approach
follows a pattern of strong upstream (supply) linkages from Japan to Asian
affiliates, and strategies which shift production of goods with different
technological requirements to Asian countries at different stages of technological
sophistication. Moreover, physical capital mobility and financial capital mobility
promote each other: Growing foreign direct investment should require more
international financing, and growing financial capital mobility may encourage
further FDI vice versa.
II. Influential power of the Japanese yen in exchange rate movement in Pacific-
Asia
This section empirically tests whether the Japanese yen plays a role as the
3 See Faruqee(1991) . He a lso suggested that as reg ional and wor ld interes t rates are l inked to a greater degree as a resu l t o f increased cap i ta l mobi l i ty, the ab i l i ty o f independent monetary po l i cy to a f fec t rea l economic ac t iv i ty through domest i c in terest ra tes has been reduced . 4 Goto and Hamada (1994) .
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target currency in the Pacific-Asian region. First, exchange rate system in each
country and implicit weights assigned on the Japanese yen in each currency are
estimated. Second, nominal exchange rate fluctuation is examined. Third, real
exchange rate fluctuation and relation with trade linkage are presented. In
addition, persistence of nominal and real exchange fluctuation is estimated.
1. Exchange rate system in each country
Asian currencies are basically determined on the basis of demand and
supply conditions in the exchange market, although most countries try to stabilize
their currencies vis-a-vis US dollar or a basket of major trading partners’
currencies. In most countries, the US dollar is the sole intervention currency
(Table 2).5
Korea : Since the introduction of a market average rate (MAR) system6 on March
2, 1990, the Korean won-US dollar exchange rate in the interbank market is set
between +/-0.6 percent and, since November 1994, 1.50 percent against the MAR
during each business day. The exchange rates of the won against currencies
other than the US dollar are determined in relation to the exchange rate of the US
dollar against these currencies in the international market.
Singapore : The Monetary Authority of Singapore monitors the external value of
5 The fo l lowing d i scuss ion i s based on in format ion prov ided by the IMF, Exchange Arrangements & Exchange Restr i c t i ons , Annual Report 1995 . However, most recent exper ience between March and May 1995 showed that some countr ies sh i f ted the i r reserve currency into the Japanese yen-denominated asse ts f rom the do l lar ones . 6 Under the MAR system, Korean won-US do l lar rate has been determined on the bas i s o f the weighted average o f in terbank rates f or Korean won-US do l lar spot t ransact ions o f the prev ious day. This system was estab l i shed in response to the US po l i t i ca l pressure and supposed to a l low a b igger ro le for the market in determining the won/do l lar rate .
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the Singapore dollar against a (undisclosed) trade-weighted basket of currencies
with the objective of maintaining a low and stable domestic inflation rate. Rates
for the other currencies are available throughout the working day and are based
on their cross rates against the US dollar in international markets.
Hong Kong : Since October 17, 1983, the Hong Kong dollar has been linked to the
US dollar. For some transactions, the exchange rate of Hong Kong dollar is set in
the exchange market at freely negotiated rates. However, the possibility of
interest rate arbitrage and currency arbitrage, together with the capability of the
Hong Kong Monetary Authority to intervene in the market, tends to keep the
market rate in line with the linked rate.
Malaysia : The Central Bank of Malaysia intervenes only to avoid excessive
fluctuations in the value of the ringgit in relation to a basket of currencies
weighted in terms of Malaysia’s major trading partners and the currencies of
settlement. Rates for all other currencies are determined on the basis of the
ringgit-US dollar rate and the US dollar rates for those currencies in market
abroad.
Thailand : The external value of the baht is determined on the basis of the
relationship of the baht to a (undisclosed) weighted basket of currencies of
Thailand’s major trading partners and other considerations.
Indonesia : Since November 1978, the exchange value of the rupiah is determined
by Bank Indonesia under a system of managed float against a basket of weighted
currencies. The US dollar is the intervention currency. Exchange rates for
certain other currencies are determined on the basis of the rates in the bourse for
the US dollar and rates for the currencies concerned in international markets.
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The Philippines : The authorities intervene when necessary to maintain orderly
conditions in the exchange market and in light of their other policy objectives in
the medium term.
China : Before 1994, both the official rate and the market rate are adopted and the
official exchange rate was adjusted according to movements in the value of a
basket of internationally traded currencies. In January 1994, the official rate was
adjusted to the market one. Since then the central bank quotes the midpoint rate
against the US dollar based on the previous day’s prevailing rate in the interbank
foreign exchange rate.
Australia and New Zealand : The Reserve Bank of Australia and the Reserve Bank
of New Zealand allow for an independent float, but retain discretionary power to
intervene in the foreign exchange market.
Weights on the US dollar, the Japanese yen and the Deutsche mark in Pacific-Asian
currencies
As mentioned above, most of Pacific-Asian currencies are linked to either
the US dollar or a trade-weighted basket. Some countries experiencing the
increase in the share of their trade with Japan, the weight assigned to the yen
might have increased commensurately. Since the weights assigned to various
currencies are not disclosed, the implicit weights on the US dollar, the Japanese
yen and DM are estimated by using monthly data.
I estimated the following currency basket function:
Δln ERi = constant + αΔln(US$/SFR) + βΔln(yen/SFR) +γΔln(DM/SFR) and
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Δln ERi = constant + αΔln(US$/pound) + βΔln(yen/pound) + γΔln(DM/pound) 7
All currencies are expressed as rates in units of national currency per Swiss franc
or British pound (e.g. ERi = the currency of country i per Swiss franc or British
pound). Each coefficient is interpreted as weights of the US dollar, the Japanese
yen and the Deutsche mark respectively. To see how weights have changed in
response to exchange-rate movements, sample periods were divided into four,
(1)1980.1-1984.12 (the period of strong US dollar), (2)1985.01-1988.12 (the period
of a rapid depreciation of the dollar/appreciation of the yen) and (3)1989.01-90.04
(the period of strong dollar/weak yen), (4)1990.05 - (the period of strong
yen/weak dollar).
Table 3-1 and 3-2 suggest that estimated weights on the US dollar are
relatively significant and despite overall poor regression results these estimates
seem to suggest that the weight on the US dollar remains dominant. In the face
of the appreciation of the Japanese yen between 1985 and 1988 Singapore,
Malaysia, China, Australia and New Zealand seemed to reduce the weight on the yen
and the coefficients became insignificant from significant. However, in Korea,
Singapore and Thailand, the weight on the yen increased thereafter and the
coefficients for the yen became significant again in the 1990s. In Singapore and
Thailand, in addition to the Japanese yen, estimated weights on the Deutsche mark
became significant in the 1990s. In most countries (except Malaysia and China)
7 Here , a currency basket i s formulated as fo l lows . I t i s assumed that a currency in Pac i f i c -As ian economies would be descr ibed as a geometr ic weighted average o f currency 1 , currency 2 and currency 3 : E i = AE 1 a *E 2 b *E 3 c . Taking logar i thm, lnE i = lnA + a lnE 1 + b lnE 2 +c lnE 3 Af ter deduc ing the der ivat ive o f the log function, ΔEi/Ei= constant + a ΔE1/E1 + b ΔE2/E2+ c ΔE3/E3 Rate of change (Δ E i /E i ) i s expressed in the form o f f i rs t d i f f erenc ing o f l ogar i thm.
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these three currencies account more for weight-setting (with higher R2) in the
1990s than in the first half of 1980s. There seems no major difference between the
result using Swiss franc and British pound. Only slight differences are : the
latter estimation shows significant weights on the Deutsche mark in Singapore and
China during the 1980.01-1984.12 period, in Malaysia during the 1980.01-1988.12
period and significant weights on the Japanese yen in Thailand during the
1985.01-1988.12 period, while the former does not.
In sum, in spite of an increase in trade of some countries with Japan, there
does not seem to be an evidence suggesting the hypothesis that the Japanese yen
has gained weight in exchange rate targeting regionwide. In the face of the
appreciation of the Japanese yen after the Plaza Agreement, some countries
reduced its weight in their baskets, possibly because they wanted to avoid letting
their currencies appreciate against other currencies rapidly. In the 1990s,
however, some countries such as Korea, Singapore and Thailand seemed to reduce
weights on the US dollar and increase weights on the Japanese yen or the
Deutsche mark in comparison with the latter of the 1980s.
2. Nominal exchange rate fluctuation
Might Pacific-Asian economies try to stabilize the foreign exchange value
of their currencies with the US dollar or the Japanese yen? As shown above,
officially only one of them are pegged uniquely to the US dollar and none of them
is pegged to the Japanese yen. Dominant implicit weights are estimated to be
assigned to the US dollar. Here, we determine if they actually tend to link their
currencies to the major foreign currency - either the US dollar or the Japanese
yen. Table 4 presents the average and standard deviation of the monthly changes
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in nominal exchange rates of Pacific-Asian currencies against the US dollar, the
Japanese yen and the Deutsche mark in the form of first order logarithmic
difference. The average implies the degree of stability of the value of the
currency over the period and the standard deviation shows the volatility.
In the very short-run, when prices are fixed, nominal exchange rates are
adjusted to cancel interest rate differential between the domestic and foreign ones
through the short-term capital mobility. For every country, the value of the
currency vis-a-vis appreciating currencies seems less stable : While in the first
half of the 1980s the value against the US dollar appeared a little less stable (with
a bigger change) than against the Japanese yen and the Deutsche mark, the value
against the Japanese yen become the least stable among the three currencies since
the latter half of the 1980s (except the short period of weakening yen).8
Volatility of exchange rates against the US dollar seemed to decrease from the
1980s to the 1990s except in Japan and China, whose value of standard deviation
in the 1990s is remarkably higher than other countries.
In the 1990s, exchange rate against the Japanese yen changed and
fluctuated more (with bigger average and standard deviation) than against the US
dollar as well as the Deutsche mark. Only in Singapore the value against the
Japanese yen changed less than that against the US dollar, although the value of
Singapore dollar was even more stable against the Deutsche mark than against the
Japanese yen.
In sum, exchange rates in Pacific-Asian currencies against the Japanese yen
seem less stable and more volatile than against the US dollar and even against the
8 However, these d i f ferences are hard ly s tat i s t i ca l ly s ign i f i cant .
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Deutsche mark for the most period since the latter half of the 1980s. This is in
part a reflection of the fact that the US dollar continues to the primary target
currency of the region. This role seems to remain unchanged in most countries,
suggesting that the perception of a growing importance of the yen as a target
currency may be exaggerated.
3. Real exchange rate movements
In the medium and longer run, when prices change, real exchange rates
represent competitiveness in trade, because they reflect a difference in prices
between domestic and abroad. Therefore, the monetary authorities may have a
good reason to monitor the real value against currencies of major trade partners.
The real exchange rate (RER) of country i per US dollar is defined as:
RERi/us$ = (NERi/us$*Pus)/Pi
RERi/us$: real exchange rate of country i against the US dollar ; expressed in terms of domestic currency per US dollar
NERi/us$: nominal exchange rate of country i against the US dollar; expressed in terms of domestic currency per US dollar
Pus : CPI in the US Pi : CPI in country i
As a whole, like nominal exchange rates, real exchange rates seem less stable
and more volatile against the Japanese yen than against the US dollar and the
Deutsche mark for the most period since the latter half of the 1980s (Table 5). 9
In comparison with the case in nominal rates, real rates are more stable and less
volatile in most cases.
In the 1990s, in countries such as Hong Kong, Malaysia, Thailand, where
either their currencies are pegged to the US dollar or weights assigned to the US
9 L ike the case o f the nominal exchange rate , the fo l l owing d i f ferences are hardly s ta t i s t i ca l ly s igni f i cant .
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dollar in the currency basket seem dominant and relatively high inflation is
observed, their currencies appreciate against the US dollar much more in real
terms than nominal terms. At the same time, every currency appreciated in real
terms against the US dollar, although some of them depreciated in nominal terms
(Korea, Indonesia and the Philippines).
Against the Japanese yen, every currency depreciated in real terms in the
1990s, but none of them depreciated so much in real terms as nominal terms. In
particular, the value of the Singapore and Hong Kong dollar and the Philippine
peso against the Japanese yen changed less than against the US dollar in real
terms, more than against the Deutsche mark, though. In terms of volatility
(standard deviation), Pacific-Asian currencies are more volatile against the
Japanese yen also in real terms than the US dollar.
Greater real stability of the Japanese yen against Pacific-Asian currencies
than nominal one seems compatible with increase in share of imports in some
countries from Japan in the 1990s (see Table 1), when the Japanese yen nominally
appreciated much more substantially. Most of Pacific-Asian economies experienced
real appreciation against the US dollar in the 1990s, which might partly explain a
declining trend in the share of exports to the US.
There may be reverse causality. As the share of most Pacific-Asian
economies’ imports from Japan increased, nominal yen’s appreciation would lead
to a rise in import prices, then to domestic prices. Therefore their price rise
would be higher than Japanese one, which would partially offset nominal
depreciation of their currencies against the Japanese yen.
Persistence of nominal and real exchange rate changes
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Weights of a target currency should affect persistence in exchange rate
changes: When the currency in some country is perfectly linked to the US dollar,
changes in exchange rate against the US dollar shouldn’t be persistent. On the
contrary, when only a small weight is assigned to the US dollar, the exchange rate
against the US dollar is partially adjusted, so changes should be more persistent.
Here persistency of changes in nominal and real exchange rate is expressed
as the following fourth-order autoregression coefficients.
Δln ERit = α 1Δln ERit-1 + α 2Δln ERit-2 + α 3Δln ER it-3 + α 4Δln ER it-4
To see how the persistency changed over periods as relative stability and
instability, the sample period is also divided into above mentioned four. A positive
autoregression coefficient means a persistency of a specific movement, and the
size of the coefficient shows the magnitude of such persistency.
Table 6 shows that almost all of the average first-order autoregression
coefficients are positive, which would imply changes in exchange rates are more
or less persistent in these countries and the link to any currency should be
considered partial. Changes in nominal terms are generally more strongly
persistent than real terms. In the period of strong US dollar changes are less
persistent than those in the period of weak dollar, i.e. exchange rate adjustment
was estimated to be done very smoothly. Lack of persistency in exchange rate
movement against the US dollar in Hong Kong supports the fact that Hong Kong
dollar is pegged to the US dollar.
In the 1990s, the sums of the coefficients for the US dollar in Korea,
Singapore, Malaysia, Thailand and Indonesia are bigger than those for the
Japanese yen, which would imply the linkage of their currencies to the Japanese
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yen should be stronger than to the US dollar. This implication would be partly
compatible with the estimation of weights assigned to the Japanese yen (Table 3)
that in Korea, Singapore and Thailand the weight on the yen increased in the
1990s from the 1980s, although the weight on the dollar stays higher on the yen.
In sum, changes in the nominal and real exchange rates between Japan and
Pacific-Asian countries are persistent. While they were clearly more persistent
than those between the United States and most Pacific-Asian countries between
1985.01 and 1988.12, they became less persistent since 1990.
This section leads to the conclusion that Pacific-Asian exchange rates
against the US dollar seem generally more stable and less volatile in both nominal
and real terms than against the Japanese yen in the 1990s. The US dollar still
seems a targeted currency, although real value against the Japanese yen become
more stable in the 1990s than against the US dollar in some countries, and a
growing literature suggests an increase in international use of the yen.10
III. Correlation in interest rates
This section focuses on targeted "foreign" real interest rates in arbitrage
transactions. In analyzing the comovement of interest rates in Pacific Asian
economies, where development of the financial market is diverse, the availability
and compatibility of the interest rate data cause serious problems for analysis.
For this reason, the money market rate, which is available in most countries, seems
1 0 See Tav las and Ozeki (1992) , I to and Krueger (1994) and Frankel (1992) .
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to be the best interest rate to use as independent variable.11 Real interest
rates are obtained by deflating nominal ones with logarithmic difference in
monthly CPI.12
A possible test is to undertake regression analysis to see whether Japanese
real interest rate has some influential power in determining interest rate
movement.13 For comparative purposes, US real interest rates are also used as
an explanatory variable.
First, the real interest rate in country i is regressed on its own past.
Changes in the real interest rate reflects fundamental changes in the real
economy, which usually takes time.
RMMRit = C + α 1 RMMRi,t-1 +α 2 RMMR i,t-2 +α 3 RMMR i,t-3+α 4 RMMR i,t-4
Second, either the current and past real interest rate in the US or Japan
is included, which are supposed to reflect major external events, respectively.
RMMRit = C + α 1 RMMRi,t-1 +α 2 RMMR i,t-2 +α 3 RMMR i,t-3+α 4 RMMR i,t-4
+ β 0 RMMRus,t + β 1 RMMRus,t-1 +β 2 RMMR us,t-2 +β 3 RMMR us,t-3 +β 4 RMMR us,t-4
RMMRit = C + α 1 RMMRi,t-1 +α 2 RMMR i,t-2 +α 3 RMMR i,t-3+α 4 RMMR i,t-4
+ γ 0 RMMRjapan,t + γ 1 RMMRjapan,t-1 +γ 2 RMMRjapan,t-2 +γ 3 RMMRjapan,t-3
11 Interest rate data were obtained from IMF, International Financial Statistics. Money Market Rates ( l ine 60B) were avai lab le f or Japan ( ca l l money rate ) , Korea ( ca l l money rate ) , S ingapore (3 month interbank rate ) , Malays ia (overn ight interbank l ending rate ) , Indones ia ( interbank rate ) , Thai land ( interbank depos i t rate ) . Austra l ia and New Zealand are exc luded because o f lack o f monthly pr i ce data . 1 2 RMMR=ln{1+MMR/(100*12) } - Δ ln CPI 1 3 In th is regress ion , among fac tors which would a f fe c t arb i trage transact i ons , those o ther than the rea l in terest rate such as expected changes in rea l in tere s t rates are assumed to be re f lec ted in error terms.
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+ γ 4 RMMRjapan,t-4
Finally, both the Japanese and the US current and past real interest rate
are added and I checked whether they add explanatory power via a F test.
RMMRit = C + α 1 RMMRi,t-1 +α 2 RMMR i,t-2 +α 3 RMMR i,t-3+α 4 RMMR i,t-4
+ β 0 RMMRus,t + β 1 RMMRus,t-1 +β 2 RMMR us,t-2 +β 3 RMMR us,t-3 +β 4 RMMR us,t-4
+ γ 0 RMMRjapan,t +γ 1 RMMRjapan,t-1 +γ 2 RMMRjapan,t-2 +γ 3 RMMRjapan,t-3
+γ 4 RMMRjapan,t-4
The results of these regressions are found in Table 7. Reflecting the sticky
process of adjustment in the real economy, the real interest rate is explained by
its own past to some extent (in the first half of the 1980s and in the 1990s in Korea,
in the most 1980s in Malaysia, between 1985 and 1988 in Thailand, and in the 1990s
in Indonesia). Neither the Japanese nor the US interest rate individually seems
to have dominant influence on these Pacific-Asian interest rates and correlation
varies from country to country and from period to period: Singapore’s interest
rates show relatively strong correlation with the US and Japanese one during the
most sample period, although correlation with the lagged US interest rates seems
stronger than that with the Japanese one and explanatory power of its own past
has been weak in the whole sample period. In Malaysia and Thailand, while the
domestic interest rates showed significant correlation with the current (in
Thailand) or lagged (in Malaysia) US and Japanese one in the 1980s (', their
correlation seems to become weak and influential magnitude of all interest rates
have become weaker in the 1990s than in the 1980s. In Korea the Japanese interest
rate does not have additional power by itself in the 1990s. Poor results between
1989.01 and 1990.04 is possibly attributable to very limited degree of freedom.
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In sum, these results also suggest that interest rates of Pacific-Asian
countries don’t seem to be influenced by Japanese interest rate very significantly.
Nor has the US interest rate substantial influential power by itself. However, in
the process of financial integration, domestic real interest rates in more advanced
Pacific-Asian economies (Singapore and Korea) show significant correlation with
US and Japanese rates in the 1990s.
IV. Conclusion
In sum, in answering the question, "Are the Japanese yen and interest rate
the target of arbitrage transactions by Pacific-Asian economies?", I must respond
in the negative.
The Pacific-Asian countries have been successful in promoting economic
growth through exploitation of the international marketplace by exporting. A
necessary result of this approach is greater degree of dependence on the vagaries
of the world market. The recent trend toward economic integration in Europe and
in the Americas caused the Pacific-Asian countries to be concerned about the
future of the international marketplace, encouraging them to explore deeper
internal economic transactions. In the process of forming closer regional economic
links, financial linkage takes on a growing importance.
Capital is relatively mobile, that is, intra-regional foreign direct investment
and other financial flows have been increasing remarkably, and their international
trade as well as financial transactions have been already quite concentrated in the
region.
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Under growing financial integration, in light of the current status quo, it
is implausible that the Japanese yen is becoming the target currency and that the
Japanese interest rate is taken into account in the arbitrage transactions. Most
Pacific-Asian currencies are linked to either the US dollar or a trade-weighted
basket. All countries assign the greatest weight to the US dollar. In the 1990s,
however, some countries such as Korea, Singapore and Thailand seemed to reduce
weights on the US dollar and increase weights on the Japanese yen or the
Deutsche mark in comparison with the latter of the 1980s.
For every country, the nominal and real exchange rates against the
Japanese yen seem less stable and more volatile than against the US dollar and
even against the Deutsche mark for the most period since the latter half of the
1980s. It would suggest the US dollar continues to be the primary target
currency of the region and Pacific-Asian countries try to keep the value of their
currency stable relative to the US dollar, rather than the Japanese yen. In the
1990s, while every currency appreciated in real terms against the US dollar, none
of them depreciated so much in real terms as nominal terms against the Japanese
yen. Greater real stability of the Japanese yen against Pacific-Asian currencies
than nominal one seems compatible with increase in share of imports in some
countries from Japan in the 1990s, when the Japanese yen nominally appreciated
much more substantially. Or reversely, with increasing share of most Pacific-
Asian economies’ imports from Japan, nominal yen’s appreciation would lead to a
rise in import prices, then to domestic prices, which would partially offset nominal
depreciation of their currencies against the Japanese yen. Changes in the nominal
and real exchange rates between Japan and Pacific-Asian countries are persistent.
-19-
While they were clearly more persistent than those between the United States and
Pacific-Asian countries between 1985.01 and 1988.12, they became less persistent
since 1990.
In terms of interest rates, US and Japanese real interest rates sometimes
seem to explain better than the country’s own past, although neither Japanese nor
the US real interest rate by itself has dominant influential power. However, in the
process of financial integration, domestic real interest rates in more advanced
Pacific-Asian economies (Singapore and Korea) show significant correlation with
US and Japanese ones in the 1990s.
Despite all these results, there is no question as to the possibility that
deepening economic interchange will require further growth of financial flows.
In fact, financial integration has been supported steadily by the emergence of
Hong Kong and Singapore as international financial centers with the increasing
number of investors and transactions in the Pacific-Asian region. Under those
circumstances, financial capital from all over the world moves toward as profitable
opportunities as possible in a moment. The above mentioned question, "Are the
Japanese yen and interest rate the target of arbitrage transactions by Pacific-
Asian economies?" will require further discussion on inter alia attractiveness of
the Japanese yen and Japanese financial market including openness and deepness
of the market as well as transparency of the Japanese financial system.
-20-
Reference
Faruqee, Hamid (1991), "Dynamic Capital Mobility in Pacific Basin Developing
Countries: Estimation and Policy Implications", IMF Working Paper 91/115
Frankel, Jeffrey A (1992), "Is Japan creating a yen block in East Asia and the
Pacific?", NBER Working Paper 4050
Frankel, Jeffrey A. and Shang-Jin Wei (1994), "Yen Bloc or Dollar Bloc?
Exchange Rate Policies of the East Asian Economies", Macroeconomic
Linkage; Savings, exchange rates, and Capital Flows, edited by Ito,
Takatoshi and Anne Krueger. The University of Chicago Press
Goto, Junichi and Koichi Hamada (1994), "Economic Preconditions for Asian
Regional Integration", Macroeconomic Linkage; Savings, exchange rates, and
Capital Flows, edited by Ito, Takatoshi and Anne Krueger. The University
of Chicago Press
International Monetary Fund, Exchange Arrangements & Exchange Restrictions,
Annual Report 1992
Taguchi, Hiroo (1994), "On the Internationalization of the Japanese Yen",
Macroeconomic Linkage; Savings, exchange rates, and Capital Flows, edited
by Ito, Takatoshi and Anne Krueger. The University of Chicago Press
Tavlas, George S and Yuzuru Ozeki (1992), "The internationalization of
currencies: an appraisal of Japanese Yen", IMF Occasional Paper 90
United Nations, World Investment Report 1991; The Triad in Foreign Direct
Investment
-21-
Table 1 Share in intra-regional trade (%)
Imports Exports 1980 1985 1990 1992 1980 1985 1990 1992 Japan Intra 28.0 32.3 32.7 36.3 28.9 27.7 32.4 35.4 US 17.5 20.3 22.8 22.8 24.4 37.6 31.7 28.4 Korea Intra 38.1 38.8 40.8 43.5 31.2 27.2 36.6 42.0 US 21.9 20.8 24.3 22.4 26.4 35.6 29.9 23.7 Japan 26.2 24.2 26.6 23.8 17.3 15.0 19.4 15.1 Taiwan Intra 39.4 41.5 45.0 48.6 30.9 29.0 39.2 43.3 US 23.7 23.6 23.1 21.9 34.3 48.3 32.5 29.0 Japan 27.1 27.6 29.3 30.4 11.0 11.3 12.4 10.9 Hong Kong Intra 65.0 70.6 73.5 75.4 29.1 43.1 45.9 47.4 US 12.0 9.1 8.5 7.7 26.1 30.8 24.1 23.1 Japan 23.3 23.0 15.7 16.9 4.6 4.2 5.7 5.2 Singapore Intra 44.8 52.8 53.4 55.8 47.3 45.3 47.7 48.2 US 14.1 15.2 16.0 16.5 12.7 21.2 21.3 21.1 Japan 17.8 17.1 20.2 21.1 8.1 9.4 8.7 7.6 Malaysia Intra 53.6 58.8 59.4 63.1 54.4 62.1 58.5 56.9 US 15.0 15.2 16.8 15.9 16.3 13.0 16.9 18.7 Japan 23.0 23.0 24.1 26.0 22.8 23.8 15.8 13.3 Thailand Intra 41.7 51.9 57.0 58.2 41.5 40.8 39.2 41.2 US 16.6 11.4 10.8 11.7 12.7 19.7 22.7 22.5 Japan 20.7 26.5 30.4 29.3 15.1 13.4 17.2 17.5 Indonesia Intra 57.4 48.1 53.5 52.5 67.5 65.9 68.5 63.4 US 13.0 16.8 11.5 14.0 19.6 21.7 13.1 13.0 Japan 31.5 25.8 24.3 22.0 49.3 46.2 42.5 31.7 Phillipines Intra 39.1 49.0 47.1 50.7 44.2 41.7 38.4 34.9 US 23.6 25.3 19.5 18.2 27.5 35.9 37.9 39.1 Japan 19.9 14.4 18.4 21.2 26.6 18.9 19.8 17.8 China Intra n.a. 52.8 54.5 60.6 n.a. 59.4 66.7 67.4 US n.a. 11.9 12.3 11.0 n.a. 8.6 8.3 10.1 Japan n.a. 35.8 14.2 17.0 n.a. 22.2 14.5 13.7 Australia Intra 31.6 36.9 39.6 41.6 44.6 45.2 56.2 60.3 US 21.8 21.7 24.3 23.1 10.0 8.2 11.9 9.2 Japan 17.0 23.1 19.0 17.6 24.7 25.5 27.0 26.6 New Zealand Intra 43.5 47.3 46.3 48.9 37.2 40.1 49.4 52.5 US 13.8 16.0 17.9 19.6 12.8 14.4 13.3 12.6 Japan 14.4 20.6 15.6 14.7 12.5 14.5 16.7 15.7 Total Intra 37.0 43.6 46.6 51.5 36.6 36.9 42.7 45.3 US 17.7 17.8 18.6 17.5 22.3 30.8 25.5 23.2 Japan 11.7 15.8 14.5 15.7 10.7 9.7 9.6 8.4
(Source) Institute of Developing Economies "AIDXT", and IMF, "Direction of Trade".
-22-
Table 2 Exchange rate Regime in Pacific-Asian countries
A peg to managed floating independ-ently floating
the US dollar
a composite of currency
Korea MAR(closely linked to the US $)
Singapore monitor (trade- weighted basket
Hong Kong *
Malaysia monitor (trade- weighted basket
Thailand trade-weighted basket
Indonesia a basket of weighted currencies
Philippines *
China (closely linked to the US $)
Australia *
New Zealand *
Source: IMF, Exchange Arrangements and Exchange Restrictions, 1995
-23
-
Table 3-1 Implicit basket weights (based on SFR)
80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08 Korea constant 0.841* -0.343* -0.154 0.302* Indonesia constant 0.784 1.145 0.308* 0.352* US dollar 0.942* 0.988* 0.985* 0.861* US dollar 0.921* 0.943* 0.939* 0.972* yen -0.010 -0.082 0.224* 0.139* yen 0.053 0.396 0.033 0.019 DM -0.040 -0.8888 -0.017 0.013 DM 0.443 -0.880 0.028 0.010 adj.R2 0.717 0.936 0.978 0.941 adj.R2 0.355 0.384 0.998 0.995 Singapore constant -0.134 0.094 -0.310 -0.301 Phillipines constant 1.919* -0.076 0.241 0.051 US dollar 0.595* 0.737* 0.794* 0.676* US dollar 1.242* 1.173* 1.009* 1.153* yen 0.243* 0.075 0.072 0.126* yen 0.014 -0.105 0.087 -0.157 DM -0.020 0.063 0.069 0.231* DM -0.408 0.070 -0.091 0.147 adj.R2 0.930 0.895 0.917 0.959 adj.R2 0.440 0.890 0.986 0.778 Hong Kong constant 0.688* 0.008 0.033 -0.011 China constant 0.689* 0.384 -0.341 1.040 US dollar 0.714* 0.988* 1.015* 1.002* US dollar 0.436* 1.142* 1.295* 0.622* yen 0.178 0.002 -0.018 0.001 yen 0.195* -0.227 0.893 0.243 DM -0.087 0.016 0.044 0.001 DM 0.212 0.338 -1.721 0.882 adj.R2 0.600 0.998 0.999 0.998 adj.R2 0.645 0.798 0.635 0.245 Malaysia constant -0.014 0.434* -0.016 -0.148 Australia constant 0.378 0.275 0.839 0.056 US dollar 0.619* 0.798* 0.912* 0.861* US dollar 0.554* 0.817* 0.812* 1.073* yen 0.171* 0.083 0.075 0.021 yen 0.336* 0.267 -0.014 0.004 DM 0.071 0.031 0.088 0.254 DM -0.168 0.555 0.330 -0.325 adj.R2 0.877 0.879 0.950 0.872 adj.R2 0.628 0.473 0.584 0.775 Thailand constant 0.563 0.071 0.064* 0.039* New Zealand constant 1.007* -0.210 0.594 -0.075 US dollar 1.025* 0.808* 0.811* 0.821* US dollar 0.467* 0.725* 0.760* 0.814* yen 0.079 0.042 0.109* 0.105* yen 0.327* 0.277 0.146 0.087 DM -0.078 -0.122 0.097* 0.067* DM -0.030 -0.716 0.773 -0.201 adj.R2 0.708 0.972 0.999 0.999 adj.R2 0.404 0.283 0.768 0.756
△ln (currency/SFR) =constant+α△ln (US$/SFR) +β△ln (¥/SFR) +γ△ln (DM/SFR)
* significant at 5% level
-24
-
Table 3-2 Implicit basket weights (based on pound)
80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08 Korea constant 1.067* -0.376* -0.248 0.319* Indonesia constant 1.258* 1.267* 0.311* 0.351* US dollar 1.091* 1.000* 0.961* 0.884* US dollar 1.231* 0.776* 0.939* 0.971* yen 0.078 0.058 0.344* 0.126* yen 0.114 0.443 0.044* 0.020 DM 0.190 -0.083 -0.122 -0.083 DM 0.332 -0.612 0.042* 0.002 adj.R2 0.728 0.921 0.975 0.944 adj.R2 0.381 0.279 0.998 0.994 Singapore constant -0.153 0.123 -0.284 -0.306* Phillipines constant 1.760* -0.114 0.241 0.063 US dollar 0.583* 0.701* 0.802* 0.665* US dollar 1.138* 1.186* 1.009* 1.178* yen 0.272* 0.088 0.007 0.132* yen -0.004 -0.134 0.104 -0.172 DM 0.137* 0.132 0.077 0.150* DM -0.360 -0.087 -0.079 0.034 adj.R2 0.891 0.887 0.901 0.958 adj.R2 0.264 0.862 0.984 0.745 Hong Kong constant 0.645* 0.007 0.006 -0.010 China constant 0.597* 0.302 0.012 1.103 US dollar 0.687* 0.988* 1.001* 1.003* US dollar 0.377* 1.117* 1.367* 0.754* yen 0.203 -0.000 -0.020 0.000 yen 0.198* -0.307* 0.982* 0.165 DM 0.068 0.007 -0.010 0.000 DM 0.303* -0.086 -0.944 0.301 adj.R2 0.472 0.997 0.999 0.998 adj.R2 0.585 0.737 0.607 0.229 Malaysia constant -0.035 0.493* -0.068 -0.146 Australia constant 0.248 0.094 0.760 -0.006 US dollar 0.606* 0.729* 0.902* 0.873* US dollar 0.470* 0.870* 0.795* 0.978* yen 0.192* -0.055 0.055 0.013 yen 0.350* 0.129 -0.013 0.058 DM 0.186* 0.184* -0.030 0.100 DM 0.013 -0.182 0.170 -0.333* adj.R2 0.825 0.863 0.936 0.853 adj.R2 0.484 0.361 0.512 0.737 Thailand constant 0.545 0.138 0.054* 0.034* New Zealand constant 0.788* -0.042 0.170 -0.105 US dollar 1.013* 0.745* 0.809* 0.815* US dollar 0.324* 0.533* 0.671* 0.756* yen 0.069 0.078* 0.107* 0.108* yen 0.307* 0.356 0.149 0.122 DM -0.112 0.075 0.074* 0.053* DM 0.060 -0.280 -0.085 0.011 adj.R2 0.558 0.968 0.999 0.999 adj.R2 0.231 0.192 0.509 0.737
△ln (currency/pound) =constant+α△ln (US$/ pound) +β△ln (¥/pound) +γ△ln (DM/ pound)
* significant at 5% level
-25
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Table 4 Average and standard deviation of changes in nomial exchange rates (for average: %)
against the US dollar against the Japanese yen against the Deutsche mark 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08Japan average 0.050 -1.451 1.554 -0.701 -0.922 -0.271 1.808 -0.476 st.dev 2.934 3.110 2.156 2.987 2.433 2.000 1.979 2.866 Korea average 0.887 -0.385 0.189 0.137 0.836 1.066 -1.366 0.838 -0.085 0.794 0.442 0.363 st.dev 1.773 0.879 0.670 0.953 3.324 3.195 2.156 2.890 3.171 3.134 3.110 2.810 Singapore average 0 -0.233 -0.196 -0.421 -0.050 1.217 -1.751 0.280 -0.972 0.946 0.057 -0.196 st.dev 1.273 1.209 0.929 1.011 1.990 2.554 1.801 2.439 2.110 2.334 2.408 2.222 Hong Kong average 0.764 -0.005 -0.008 -0.012 0.714 1.445 -1.562 0.689 -0.208 1.174 0.246 0.213 st.dev 2.077 0.165 0.099 2.222 2.889 3.080 2.180 2.994 2.921 2.927 2.864 2.836 Malaysia average 0.174 0.228 0.069 -0.129 0.124 1.679 -1.485 0.572 -0.798 1.407 0.323 0.096 st.dev 1.335 1.215 0.605 1.251 2.212 2.809 2.024 2.931 2.176 2.417 2.751 2.770 Thailand average 0.471 -0.155 0.208 -0.053 0.426 1.296 -1.347 0.648 -0.501 1.025 0.461 0.172 st.dev 2.031 0.815 0.444 0.467 3.539 2.561 1.752 2.576 3.596 2.378 2.456 2.478 Indonesia average 0.891 0.996 0.352 0.336 0.840 2.447 -1.202 1.037 -0.081 2.175 0.606 0.561 st.dev 4.138 3.852 0.170 0.247 5.019 4.482 2.031 2.924 4.903 4.758 2.725 2.788 Phillipines average 1.643 0.152 0.397 0.203 1.593 1.602 -1.158 0.904 0.671 1.331 0.650 0.428 st.dev 4.015 1.442 0.391 1.921 5.201 3.892 2.208 3.895 5.297 3.704 3.029 3.604 China averaga 1.023 0.599 1.488 0.872 0.973 2.050 -0.066 1.573 0.051 1.779 1.742 1.097 st.dev 2.000 2.010 4.089 5.085 2.265 4.206 4.967 5.561 1.989 3.901 6.083 5.549 Australia average 0.450 -0.042 0.731 0.020 0.400 1.409 -0.823 0.721 -0.522 1.138 0.985 0.245 st.dev 2.073 3.298 1.918 1.774 2.347 4.300 2.542 3.561 2.641 4.320 2.857 3.494 New Zealand average 1.178 -0.577 0.604 -0.190 1.128 0.873 -0.950 0.511 0.206 0.602 0.858 0.035 st.dev 2.684 3.672 1.804 1.609 2.758 3.956 2.220 2.947 2.908 4.108 2.849 2.824
-26
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Table 5 Average and standard deviation of changes in real exchange rates
(for average: %) against the US dollar against the Japanese yen against the Deutsche mark 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08Japan average 0.287 -1.231 1.704 -0.650 -0.865 -0.260 1.795 -0.412 st.dev 3.093 3.278 2.176 2.918 2.511 2.074 1.990 2.841 Korea average 0.584 -0.463 0.016 -0.049 0.298 0.768 -1.689 0.601 -0.568 0.507 0.107 0.189 st.dev 1.647 1.111 0.568 0.953 3.235 3.408 2.345 2.676 3.164 3.285 3.253 2.715 Singapore average 0.212 0.000 -0.034 -0.396 -0.075 1.231 -1.739 0.254 -0.940 0.970 0.056 -0.158 st.dev 1.367 1.279 1.070 1.079 2.417 2.800 1.855 2.458 2.333 2.375 2.327 2.211 Hong Kong average 0.452 -0.159 -0.398 -0.498 0.165 1.071 -2.102 0.152 -0.700 0.811 -0.307 -0.261 st.dev 2.087 0.528 0.591 0.445 3.103 3.287 2.386 2.964 2.788 3.041 3.038 2.862 Malaysia average 0.285 0.377 0.291 -0.255 -0.002 1.607 -1.413 0.394 -0.867 1.347 0.382 -0.018 st.dev 1.490 1.220 0.735 1.173 2.434 2.974 2.004 3.058 2.334 2.460 2.707 2.803 Thailand average 0.455 -0.118 0.099 -0.206 0.168 1.112 -1.605 0.666 -0.697 0.852 0.190 0.089 st.dev 2.310 0.863 0.719 0.883 3.668 2.687 1.720 2.257 3.770 2.401 2.609 2.316 Indonesia average 0.546 0.707 0.243 -0.127 0.259 1.938 -1.461 0.523 -0.606 1.677 0.334 0.110 st.dev 4.083 3.523 0.589 0.663 4.943 4.365 1.867 2.860 4.772 4.363 2.691 2.819 Phillipines average 0.555 -0.001 -0.283 -0.401 0.268 1.224 -1.988 0.249 -0.597 0.963 -0.193 -0.163 st.dev 3.962 1.661 0.813 1.969 5.376 4.242 2.295 4.018 5.425 3.834 3.086 3.594 (Note) China, Australia and New Zealand are excluded because of lack of monthly price date
-27-
Table 6 Autoregression coefficients for changes in nominal and real exchange rates (nominal exchange rates) against the US dollar against the Japanese yen 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08 Japan (-1) 0.234 0.397* 0.341 0.323 Korea (-1) 0.434* 0.857* 0.846* 0.452* 0.442* 0.459* 0.363 0.319* (-2) 0.039 -0.308* (-3) 0.656* (-4) -0.764* Singapore (-1) 0.238 0.333* 0.364 0.439* 0.179 0.451* 0.547* 0.224 Hong Kong (-1) 0.335* -0.123 0.354 0.029 0.319* 0.412* 0.361 0.320* Malaysia (-1) 0.205 0.411* 0.099 0.420* 0.256* 0.508* 0.473 0.337* (-2) -0.157 (-3) 0.340* Thailand (-1) 0.198 0.122 0.226 0.338* 0.148 0.426* 0.383 0.285* (-2) -0.007 (-3) 0.158* Indonesia (-1) 0.020 0.433* 0.403* 0.368* 0.099 0.450* 0.250 0.381* (-2) 0.439* 0.187 (-3) 0.312* Phillipines (-1) 0.185 0.322* 0.646* 0.429* 0.097 0.424* 0.217 0.473* Australia (-1) 0.330* 0.411* 0.403 0.420* 0.183 0.450* 0.023 0.406* (-2) 0.089 -0.353* (-3) 0.038 0.228 (-4) -0.487* -0.256* New Zealand (-1) 0.513* 0.370* 0.207 0.153 0.379* 0.396* -0.095 0.175 (-2) -0.253 (-3) 0.328* (-4) -0.416* China (-1) 0.425* 0.245 0.492* 0.025 0.353* 0.382* 0.396 0.155 (real exchange rates) against the US dollar against the Japanese yen 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ~84.12 ~88.12 ~90.04 ~95.08 ~84.12 ~88.12 ~90.04 ~95.08 Japan (-1) 0.295* 0.346* 0.283 0.307* Korea (-1) 0.071 0.759* 0.374* 0.210 0.317* 0.361* 0.332 -0.053 (-2) -0.419* Singapore (-1) 0.287* 0.152 0.013 0.255* 0.149 0.455* 0.500* 0.240 Hong Kong (-1) 0.246 -0.190 -0.186 0.205 0.345* 0.307* 0.428 0.013 (-2) 0.466* 0.521* -0.311* (-3) 0.490* Malaysia (-1) 0.238 0.327* 0.021 0.398* 0.269* 0.504* 0.360 -0.048 (-2) -0.298* Thailand (-1) 0.178 0.110 -0.046 0.150 0.152 0.391* 0.452 -0.125* Indonesia (-1) 0.034 0.400* -0.359 0.221 0.093 0.381* 0.371 0.030 (-2) 0.352 (-3) 0.583* Phillipines (-1) -0.046 0.407* 0.219 0.389* 0.000 0.419* 0.318 0.183*
* significant at 5% level
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Table7 Real money market rates
80.01~84.12 85.01~88.12 89.01~90.04 90.05~ its own its own its own its own past + + + past + + + past + + + past + + + US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. rate rate rate rate Korea Fstats 4.572* 3.000* 2.449* 2.145* 0.874 0.859 0.715 0.671 0.612 2.067* 0.795 29.09 6.198* 6.144* 3.788* 4.337* Ftest 4.572* 1.947 1.015 2.826* 0.874 1.073 0.774 1.553 0.612 3.531 1.190 83.23 6.198* 5.740* 2.007 7.065* constant 0.274* -0.209 0.201 -0.149 0.340* 0.166 0.277 0.162 0.674 -0.944 0.848 -0.391 0.425* 0.384* 0.329* 0.394* RKO(-1) 0.379* 0.265 0.366* 0.268 0.175 0.140 0.224 0.221 0.326 0.525 0.455 0.246 0.546* 0.558* 0.541* 0.564* RUS 0.635 0.607 0.225 0.082 1.786* 0.085 0.705* 0.379 RUS(-1) 0.308 0.463 0.210 0.368 -0.241 -0.084 -0.982* -0.782* RUS(-2) 0.366 0.398 RUS(-3) -0.580 -0.440 RUS(-4) 0.839* 1.076* RJA -0.007 -0.055 -0.060 -0.152 0.001 0.059 0.202 0.074 RJA(-1) 0.027 -0.141 0.091 0.021 0.274 0.249 -0.168 -0.137 Singapore Fstats 0.557 0.778 1.131 0.996 0.246 2.189 0.749 1.666 0.254 0.926 1.212 11.844 0.633 2.785* 1.633 1.917 Ftest 0.557 1.196 1.960 2.912* 0.246 4.601* 1.434 5.517* 0.254 1.780 2.369 37.926 0.633 5.453* 2.969* 5.930* constant 0.456* 0.316 0.240 0.207 0.296* 0.016 0.107 -0.024 0.274 0.417 0.153 -3.809 0.107* -0.036 -0.033 -0.069 RSI(-1) 0.088 0.082 0.047 0.040 0.039 -0.184 -0.025 -0.251 0.064 0.462 -0.200 -6.182 -0.131 -0.339* -0.176 -0.315* RUS 0.148 0.138 0.402 0.434 0.173 8.354 0.066 0.025 0.065 RUS(-1) 0.203 0.216 0.522* 0.646* -0.045 9.848 0.311 0.370* 0.246 RUS(-2) 0.123 0.241 RUS(-3) 0.771* 0.583* RJA -0.116 -0.127 0.028 -0.175 0.075 1.225 0.025 -0.056 RJA(-1) 0.256 0.172 0.067 -0.044 0.390 -0.070 0.370 0.187 Malaysia Fstats 3.371* 1.608 2.746* 1.790 3.548* 2.934* 3.120* 2.477* 0.826 0.590 0.962 72.31 1.371 1.186 1.104 0.930 Ftest 3.371* 0.444 2.502* 2.817* 3.548* 2.606* 2.921* 4.470* 0.826 0.674 1.319 194.56 1.371 1.293 1.127 1.944 constant 0.108 0.007 0.026 -0.012 0.110 -0.155 -0.161 -0.295 0.313* 0.295 0.696 0.628 0.173* 0.139 0.137 0.185 RMA(-1) 0.371* 0.375* 0.249 0.249 0.427* 0.283 0.333* 0.217 -0.327 -0.117 -2.189 -0.709 0.274 0.244 0.298* 0.287 RUS 0.210 0.231 0.230 0.262 -0.157 -0.178 -0.401 -0.424 RUS(-1) -0.233 -0.092 0.277 -0.081 0.416 0.718 0.286 0.337 RUS(-2) -0.078 RUS(-3) 0.734* RJA -0.231 -0.250 0.251 0.089 -0.249 -0.366 -0.097 -0.112 RJA(-1) -0.007 -0.123 -0.003 -0.058 -0.138 -0.213 0.231 0.114 RJA(-2) 0.097 0.497* RJA(-3) 0.161 RJA(-4) 0.291* * significant at 5% level (Note) Korea : 80.01~95.08
Singapore : 80.01~95.08 Malaysia : 80.01~94.12
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Table7 Real money market rates
80.01~84.12 85.01~88.12 89.01~90.04 90.05~ its own its own its own its own past + + + past + + + past + + + past + + + US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. rate rate rate rate Thailand Fstats 2.149 2.345 2.342 2.067 2.797* 1.744 2.354* 1.674 1.120 1.406 2.018 0.974 1.969 0.984 1.524 0.858 Ftest 2.149 2.874* 2.868* 4.737* 2.797* 1.152 2.241 2.945* 1.120 1.813 2.792 2.351 1.969 0.460 1.415 1.348 constant 0.340* -0.181 0.136 -0.160 0.230* 0.103 0.160 0.140 0.438 -0.192 0.347 1.952 0.611* 0.460 0.196 0.225 RTA(-1) 0.243 0.106 0.151 0.044 0.411* 0.369* 0.377* 0.380* 0.341 0.026 -0.042 -1.218 0.269 0.213 0.240 0.248 RTA(-2) -0.446* RUS 0.847* 0.716 0.529 0.327 -0.252 -4.113 0.394 0.087 RUS(-1) 0.154 0.118 -0.149 -0.367 0.408 -0.650 0.303 0.295 RJA 0.395 0.281 0.334* 0.263 -0.041 -0.013 0.472 0.356 RJA(-1) 0.283 0.101 -0.164 -0.147 0.689 1.640 0.329 0.318 RJA(-2) 0.126 RJA(-3) -0.356* Indonesia Fstats 0.842 1.249 1.158 1.928 1.330 4.985* 6.036* 1.018 2.804* 1.703 1.325 0.977 Ftest 0.842 1.875 1.698 5.470* 1.330 7.072* 8.665* 2.321 2.804* 1.090 0.476 1.140 constant 0.567* 0.940 1.462* 1.275* 0.732 0.474 0.418 0.907 0.256 0.240 0.112 0.213 RID(-1) 0.254 0.426 0.110 0.234 -0.181 -0.341 -0.173 0.053 0.447* 0.482* 0.496* 0.511* RID(-2) 0.766 -0.105 RID(-3) 0.513 0.398* RID(-4) -0.748* RUS 0.571 0.297 0.935* -1.252 0.847 1.057 RUS(-1) 0.702 0.181 1.156* 3.793 -0.583 -0.513 RJA -0.761 -1.083 -0.151 -0.033 0.115 0.098 RJA(-1) -0.180 0.022 0.228 0.964 0.257 0.037 RJA(-2) -0.156 RJA(-3) -0.757* RJA(-4) 0.660
* significant at 5% level (Note) Thailand : 80.01~93.02
Indonesia : 86.05~93.02