The Recent Trend of Real Effective Exchange Rate in Selected East Asian Countries

抄録

Exchange rate management has become a hot topic in academic circles examining the merits of fixed versus floating regimes. The 1997-98 Asian crises have refocused attention on the exchange rate management of East Asian countries. Most views expressed criticize the pre-crisis US dollar peg regime as one cause of the crisis. It is said that this regime caused the appreciation of real effective exchange rate and the subsequent loss of competitiveness. Most of the views also have favored greater exchange rate flexibility. In spite of the suggestion of greater flexibility, after the Asian crisis, not all East Asian countries seem to prefer the same exchange rate arrangement and assessment does not always seem to reach clear-cut consensus.

This article evaluates the pre-crisis and post-crisis exchange rate management in the selected East Asian countries by focusing on examining the trend of real effective exchange rate (REER), an indicator of a country's international price competitiveness. The main findings of the study are as follows: First, we found that the REER shows a clear trend of appreciation during the pre-crisis period while it reveals a rather stable movement during the post-crisis period. Second, we verified that the pre-crisis REER appreciation, which came from the pre-crisis dollar peg regime, gave the significantly negative impact on trade balance in some East Asian countries. Third, Our empirical evidence indicated that in the post-crisis exchange rate management, some East Asian countries have come to care more about the factor of the inflation adjustment in addition to the US dollar linkage. We speculate that they may have learned the lessons that the Asian crisis was partly caused by the simple US dollar peg regime accompanied by the REER appreciation and the worsened trade balance.