Assessing Asian Equilibrium Exchange Rates as Policy Instruments

Author Name MASUJIMA Yuki  (Japan Center for Economic Research)
Creation Date/NO. March 2015 15-E-038
Research Project Research on Currency Baskets
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This paper attempts to estimate the quarterly equilibrium exchange rates (EER) of nine Asian currencies (Japan, China, Korea, Hong Kong, Singapore, Thailand, Indonesia, Malaysia, and Philippines) with the Behavioral Equilibrium Exchange Rates (BEER) from 2006 to 2014. The BEER was compared with the Fundamental Equilibrium Exchange Rates (FEER) published biannually by the Peterson Institute for International Economics. While four Asian currencies tend to be undervalued in the Peterson's FEER approach, the assessment of Asian currencies changed over time in this paper's BEER approach, which captures the Crowther's theory about the development of balance of payments over the long term. Results imply that the BEER approach is imperative for the assessment of Asian currencies, while the equilibrium level of BEER is sometimes sensible for the change of a sample period. Lessons from the results indicate that the EER of countries that shift to a more matured stage, such as Japan and emerging Asia, needs to be frequently assessed by a multi-method so that policy makers can implement appropriate coordination of exchange rate policies for the integration of Asian economies.