Synchronized Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate

Ronald McKinnon and Gunther Schnabl

No 22003, Working Papers from Hong Kong Institute for Monetary Research

Abstract: Because many authors have proposed stimulating the ailing Japanese economy by monetary expansion and yen depreciation, we explore the repercussions of depreciating the yen against the dollar on the other East Asian economies¡Xwhich largely peg to the dollar. Since 1980, economic integration among Japan¡¦s neighbors¡XChina, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, and Thailand¡Xhas intensified and (except for China) their business cycles have been highly synchronized. These cycles have been closely linked to fluctuations in the yen/dollar exchange rate¡Xthrough changes in their export competitiveness and inflows of foreign direct investment. We show that a major yen devaluation would have a negative impact on incomes in other East Asian economies and that it is not a sensible policy option for Japan.

JEL-codes: F15 F31 F33 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2003-01
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Citations: View citations in EconPapers (68)

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