Academic journal article International Journal of Business

Dynamic Linkages among Asian Pacific Exchange Rates 1995-2004

Academic journal article International Journal of Business

Dynamic Linkages among Asian Pacific Exchange Rates 1995-2004

Article excerpt

ABSTRACT

This paper analyzes the dynamic interrelationships among the exchange rates of twelve countries in the Asian-Pacific region using Vector Auto regression Models. The exchange rates of the following countries are analyzed: Australia, China, Indonesia, Japan, Malaysia, New Zealand, Philippines, South Korea, Singapore, Taiwan, Thailand, and Vietnam. The daily data spans from May 1995 until the end of 2004. One of the more interesting findings is that the Chinese foreign exchange is not as isolated as one may hypothesize given both the results of the Granger Causality tests and the declared exchange rate policy of the Beijing Government.

JEL Classification: F0, F3, G0, C3, C5, E4, P0.

Keywords: Exchange rates; Asian- Pacific region; Australia, China, Indonesia, Japan, Malaysia, New Zealand, Philippines, South Korea, Singapore, Taiwan, Thailand, and Vietnam; Correlograms; Impulse Responses; Variance Decompositions.

I. INTRODUCTION

This paper investigates the dynamic linkages among the exchange rate returns of the following Asian-Pacific countries: Australia, China, Indonesia, Japan, Malaysia, New Zealand, Philippines, South Korea, Singapore, Taiwan, Thailand, and Vietnam. The daily data spans from May 1995 until the end of 2004. Vector Auto Regression (VAR) models are used to study the dynamic interrelations among these rates of returns in foreign exchanges. These markets are becoming more and more important as the region takes its appropriate position in the world economy.

The countries studied are reshaping world trade, world finances, global manufacturing, and the entire East-West relationship. As the countries in this region are opening to the world, they are merging their relatively low costs and manpower resources with the financial and technological strengths of wealthier countries such as Australia, Japan, New Zealand, South Korea, and Singapore. Table 1 presents some economic data as well as population figures and government types for the countries in this study.

The reminder of the paper is organized as follows. Section II gives a brief review of the literature. Section III presents the Vector Auto-Regression Model. Section IV describes the data. Sections V through Section VII present the empirical results. Section V presents some diagnostic statistics for the lag structure and residuals tests. Section VI reports the result of the impulse response functions, and Section VII discusses the variance decomposition analysis. Section VIII provides a brief conclusion.

II. A BRIEF LITERATURE REVIEW

Foreign exchange markets have been thoroughly researched by Einzig (1966), Beenstock (1978), Krueger (1983), Weisweiller (1984, 1990), Dornbush (1988), and Walmsley (1992). More recently Manzur (2002), Sarno and Taylor (2002), and Shamah (2003) also have delved into this subject.

Gandolfo (2004) discusses the foreign exchange market, exchange-rate regimes, and the international monetary system using the basic models of international finance and open-economy macroeconomics. Semmler (2004) presents theories, dynamic models, and empirical evidence on the interrelation of the global financial market, economic activity, and the macroeconomy. He incorporates the foreign exchange market and international borrowing and lending into the analysis of the financial market and economic activity. In addition, he discusses exchange-rate volatility and financial crisis.

Gallagher and Taylor (2002) assemble forty-five previously published papers that are selected as important contributions to the study of speculation and financial markets, including foreign exchange market efficiency. Using VAR modeling, Kim, Kim, and Wang (2004) study the macroeconomic effects of capital account liberalization in South Korea. The current paper is the first to study the simultaneous dynamic interrelations among the exchange rates of twelve exchange rates in the Asian- Pacific region. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.