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How Did the Dollar Peg Fail in Asia?

Takatoshi Ito (), Eiji Ogawa and Yuri Nagataki Sasaki

No 6729, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we have constructed a theoretical model in which Asian firms maximize their profit, competing with Japanese and US firms in their markets. The duopoly model is used to determine export prices and volumes in response to the exchange rate fluctuations vis-…-vis the Japanese yen and the US dollar. Then, the optimal basket weight to minimize the fluctuation of the growth rate of trade balance is derived. These are the novel features of our model. The export price equation and export volume equation are estimated for several Asian countries for the sample period of 1981 to 1996. Results are generally reasonable. The optimal currency weights for the yen and the US dollars are derived and compared with actual weights that had been adopted before the currency crisis of 1997. For all the countries in the sample, it is shown that the optimal weight of the yen is significantly higher than the actual weight.

JEL-codes: F31 O11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-ifn
Date: 1999-08
Note: IFM
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Published as Ito, Takatoshi & Ogawa, Eiji & Sasaki, Yuri Nagataki, 1998. "How Did the Dollar Peg Fail in Asia?," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 256-304, December.

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