Stabilization of Effective Exchange Rates Under Common Currency Basket Systems

Eiji Ogawa and Junko Shimizu

No 12198, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We investigate the extent to which a common currency basket peg would stabilize effective exchange rates of East Asian currencies. We use an AMU (Asian Monetary Unit), which is a weighted average of ASEAN10 plus 3 (Japan, China, and Korea) currencies, as a common currency basket to investigate the stabilization effects. We compare our results with another result on stabilization effects of the common G3 currency (the US dollar, the Japanese yen, and the euro) basket in the East Asian countries (Williamson (2005)). We obtained the following results: first, the AMU peg system would be more effective in reducing fluctuations of the effective exchange rates as more countries applied the AMU peg system in East Asia. Second, the AMU peg system would more effectively stabilize the effective exchange rates than a common G-3 currency basket peg system for four (Indonesia, the Philippines, South Korea and Thailand) of the seven countries. The results suggest that the AMU basket peg would be useful for the East Asian countries whose trade weights on Japan are relatively higher than others.

JEL-codes: E6 F3 F4 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-cba, nep-fin, nep-fmk, nep-ifn, nep-mac, nep-mon and nep-sea
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Citations: View citations in EconPapers (17)

Published as Ogawa, Eiji and Junko Shimizu. "Stabilization of Effective Exchange Rates under Common Currency Basket Systems." Journal of the Japanese and International Economies 20, 4 (December 2006): 590-611.

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