Characterizing exchange rate policy in East Asia: A reconsideration

Hwee Kwan Chow, Yoonbai Kim, Wei Sun

Research output: Contribution to journalArticlepeer-review

9 Scopus citations


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.

Original languageEnglish
Pages (from-to)448-465
Number of pages18
JournalJournal of Asian Economics
Issue number3
StatePublished - Jun 2007

Bibliographical note

Funding Information:
We thank Demelinda Lagunzad for capable research assistance, Yung-hsiang Ying for data support, and the participants of the ESAM06 conference who provided useful feedback. The authors are grateful to the Office of Research, Singapore Management University for research grant support. We also deeply appreciate the helpful comments and suggestions made by two anonymous referees.


  • Currency basket peg
  • Nominal exchange rate management
  • Regional competitive pressure

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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