How Did the Global Financial Crisis Misalign East Asian Currencies?

Author Name OGAWA Eiji  (Faculty Fellow, RIETI) /Zhiqian WANG  (Hitotsubashi University)
Creation Date/NO. November 2013 13-E-096
Research Project Research on Currency Baskets
Download / Links


The global financial crisis affected the exchange rates of the U.S. dollar, the euro, and the Japanese yen, as well as some East Asian currencies. This paper investigates how the East Asian currencies were affected by the global financial crisis. We employ methodologies involving β-convergence and σ-convergence to examine the misalignments or divergence of East Asian currencies. Our empirical results show that East Asian currencies did diverge during most of the sample periods, especially after late 2005, and active international capital flows such as yen carry trades also affected their movements. We conclude that it is necessary to establish a surveillance system within the East Asian area for the purposes of early detection and prevention of intra-regional exchange rate misalignments.