The AMU Deviation Indicators Based on the Purchasing Power Parity and Adjusted by the Balassa-Samuelson Effect

Eiji Ogawa and Zhiqian Wang

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper investigates how the AMU Deviation Indicators for surveillance measurements among East Asian currencies are improved by changing their benchmark rates from the constant rates in 2000-2001 to time-varying rates based on their Purchasing Power Parities (PPPs). The Consumer Price Indexes (CPIs) are used to calculate their PPPs as a time-varying benchmark for the AMU Deviation Indicators. Because the CPIs include prices of non-tradable goods, the PPPs based on the CPIs have a problem related with the Balassa-Samuelson effect. For the reason, the PPPs adjusted by the Balassa-Samuelson effect should be used to calculate the AMU Deviation Indicators when the CPIs are used as price data. This paper compares the two types of the PPP-based AMU Deviation Indicators and the PPP-based AMU Deviation Indicators adjusted by the Balassa-Samuelson effect. We conclude that both the PPP- based AMU Deviation Indicators and the PPP-based AMU Deviation Indicators adjusted by the Balassa-Samuelson effect are also useful in making surveillance over overvaluation or undervaluation of the intra-regional exchange rates of East Asian currencies.

Keywords: Asian Monetary Unit; AMU Deviation Indicators; Purchasing Power Parity; Balassa-Samuelson Effect; Regional Monetary Cooperation (search for similar items in EconPapers)
JEL-codes: F31 F33 F36 (search for similar items in EconPapers)
Date: 2012-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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