A Deviation Measurement for. Coordinated Exchange Rate Policies in East Asia

Transcription

1 RIETI Dscusson Paper Seres 05-E-017 A Devaton Measurement for Coordnated Exchange Rate Polces n East Asa Ej Ogawa a and Junko Shmzu b Frst verson: February 18, 2005 Ths verson: May 27, 2005 The authors are grateful to Takatosh Ito, Masaru Yoshtom, Soko Tanaka, John Wllamson, and partcpants n at the Internatonal Mn Conference at the RIETI, the BIS-RIETI Conference n Bejng, and the Internatonal Workshop of YNU/KIEP at Yokohama Natonal Unversty for ther useful suggeston and dscusson. a Graduate School of Commerce and Management, Htotsubash Unversty and RIETI. Correspondng author. 2-1 Naka, Kuntach, Tokyo , Japan, Tel: , Fax: , E-mal address: ogawa.ej@srv.cc.ht-u.ac.jp. b Graduate School of Commerce and Management, Htotsubash Unversty.

2 A Devaton Measurement for Coordnated Exchange Rate Polces n East Asa Ej Ogawa and Junko Shmzu Abstract: The monetary authortes n East Asan countres have been strengthenng ther regonal monetary cooperaton snce the Asan Currency Crss n In ths paper, we propose a devaton measurement for coordnated exchange rate polces n East Asa to enhance the monetary authortes survellance process for ther regonal monetary cooperaton. We estmate an AMU (Asan Monetary Unt) as a weghted average of East Asan currences accordng to the method to calculate the ECU used under the EMS before ntroducng the euro nto some EU countres. We consder four types of AMU, whch are based on trade volume, nomnal GDP, GDP measured at PPP, and nternatonal reserves. After choosng both the AMUs based on GDP measured at PPP weght and trade weght from a vewpont of stablty of the AMU value n terms of a currency basket composed of the US dollar and the euro, we calculate the devaton ndcators from the benchmark rates for each of the East Asan currences. We compare both nomnal and real devaton ndcators by takng nto account nflaton rate dfferentals. The real devaton ndcator should be adequate for survellance over effects of exchange rate polcy on real economy whle the nomnal one can be frequently watched n real tme. Keywords: AMU (Asan Monetary Unt), devaton ndcator, survellance process, and regonal coordnaton of exchange rate polces JEL Classfcaton Codes: E58, F31 and F33 1

3 1. Introducton The monetary authortes n East Asan countres have been strengthenng ther regonal monetary cooperaton snce the Asan Currency Crss n Its representatve cooperaton s the Chang Ma Intatve (CMI) that the ASEAN + 3 (Japan, Chna, and Korea) establshed as a network of blateral and multlateral swap arrangements for managng a currency crss n the member countres. Under the CMI, the monetary authortes should conduct a survellance process for preventng a currency crss n the future. However, the monetary authortes have not any standng nsttuton for conductng any survellance process n East Asa. Instead, they have regular meetngs as the Economc Revew and Polcy Dalogue n the ASEAN+3 Fnance Deputy Mnsters Meetng for survellance over ther macroeconomc performance. Takng nto account recent movements of ntra-regonal exchange rates under the US dollar deprecaton aganst major currences, we found asymmetrc response to the US dollar deprecaton and, n turn, msalgnments among the East Asan currences. Ogawa (2004) found that East Asan currences were classfed nto at least two groups; one group of currences has been apprecated aganst the US dollar whle the other group of currences has been pegged to the US dollar. We should consder coordnaton falure 1 n conductng exchange rate polces among East Asan countres that causes based change n exchange rates among the ntra-regonal currences. In ths paper, we propose some devaton measurements for coordnated exchange rate polces n East Asa to enhance the monetary authortes survellance process n terms of regonal coordnaton of exchange rate polces. Accordng to the calculaton method n the case of the European Currency Unt (ECU) 2, we estmate four dfferent types of ndcators, whch are based on trade volume n East Asa, nomnal GDP, GDP measured at Purchasng Power Party (PPP), and nternatonal reserves. We choose both the AMUs based on GDP measured at PPP weght and trade weght from a vewpont of stablty n value of 1 Ogawa and Ito (2002). 2 Tanaka and Jn(2003) used the smlar method to calculate the exchange rates of East Asan currences aganst a weghted averages of East Asan currences. Ther sampled currences are ASEAN 4 (excludng Indonesa) plus Japan, Chna, Korea, Tawan and Hong Kong. They used nomnal GDP and nomnal GDP measured at PPP for ther weghts. 2

4 the AMU. After we choose them, we measure devatons from estmated AMU based on the GDP measured at PPP weght and trade weght for each of the thrteen East Asan countres (ASEAN10+3). We fnd the followng msalgnments among the East Asan currences that the Korean won had over +10 percent of devaton from the benchmark rate whle the Phlppne peso had over -15 percent of devaton from the benchmark and the Chnese yuan had about -10 percent of devaton from the benchmark n November Thus, we have almost 30 percent of devatons among the East Asan currences n November 2004 comparng wth benchmark year of The remnder of ths paper conssts of the followng sectons. Secton 2 descrbes our method to estmate the AMU n the case of four dfferent patterns of weghts and choose two of them from a vewpont of stablty of the AMU value n terms of a currency basket composed of the US dollar and the euro. Secton 3 calculates devaton ndcators for each of the East Asan currences from the AMU. The fnal secton offers concludng remarks. 2. Methodology of estmatng the AMU We choose ASEAN10+3 countres whch nclude Brune, Camboda, Indonesa, Laos, Malaysa, Myanmar, the Phlppnes, Sngapore, Thaland and Vetnam, Japan, Korea, and Chna to calculate the AMU that s a weghted average of East Asan currences. Our sampled perod covers from January 1999 to November We estmate the AMU accordng to the method of calculatng the ECU under the European Monetary System (EMS) before ntroducng the euro nto some EU countres. The ECU was defned as a basket of currences of the EU member countres. A share of each currency n the basket was based on some combnaton of GDP and foregn trade volumes for the relevant country. Representatve market exchange rates for the US dollar, as reported by member countres, were used to calculate an ECU equvalent, both n US dollars and n the currences of the member countres. To follow the methodology of the ECU, one of the most mportant tasks s to choose the basket weghts of AMU. In ths paper, we try to use four dfferent knds of economc sze ndcators. 3 We decde our sample perod from Jan 1999 because we try to estmate the AMU wthout any affecton of Asan crss perod. 3

5 (1) Trade volume (2) Nomnal GDP (3) GDP measured at Purchasng Power Party (PPP) (4) Internatonal reserves (mnus Gold) The trade volume s calculated as a total of export and mport volumes from the Drecton of Trade Statstcs, IMF. Both nomnal GDP and GDP measured at PPP come from the World Development Report, World Bank. We try to use not only nomnal GDP but also GDP measured at PPP because the nomnal GDP do not always reflect nternatonal dfferences n relatve pres. At the PPP, one nternatonal dollar has the same purchasng power over domestc GDP. As a result, the PPP allows us to compare GDP levels among all of the sampled countres. 4 Moreover, we assgn also the nternatonal reserves (mnus Gold) as a ndcators of basket weghts from a vewpont of fnancal aspect comparson. The data are from the Internatonal Fnancal Statstcs, IMF. All of the daly data of exchange rates come from Datastream. 5 We should use a basket currency composed by not only the US dollar but also other trader partners currences for East Asan countres. We use a basket currency composed by the US dollar and the euro rather than only the US dollar. We apply trade shares wth the Unted States and the euro area countres for total of the sampled East Asan countres as basket weghts of the basket currency. We use data on exports and mports for each of the countres n 1999 from the Drecton of Trade Statstcs, IMF. We obtaned that the basket weghts on the US dollar and the euro are 51.7 percent and 48.3 percent, respectvely. At frst, we estmate four dfferent types of AMU. We choose January 1999 as a reference perod of ndcators for country weghts. All of the types of AMU are set a unty n the startng pont of January Table 1 shows the shares n the four types of AMU and ther calculated weghts for each of the thrteen East Asan currences. The upper part of Table 1 shows the shares based on the four types of ndcators. In terms of the share of trade volume, the Japanese yen s percent and the hghest. There are four currences whose share s larger than 10 percent, whch nclude the Sngapore dollar, the Chnese yuan, the Malaysan rnggt, and the Korean won. Accordngly, the share based on trade volume s relatvely balanced among East Asan countres. 4 Due to the data constrans, we do not have GDP data for Myanmar. 5 As for the exchange rate of Myanmar kyat, data for offcal rate only could be obtaned from Datastream. 4

6 On one hand, the Japanese yen weght s almost 70 percent n terms of nomnal GDP. The second hghest one s the Chnese yuan, whose weght s only percent and the others are below 2 percent except for the Korean won, whch s 5.65 percent. In terms of GDP measured at PPP, the weght on the Chnese yuan s percent and the hghest. The second hghest one s the Japanese yen whose weght s percent and the thrd hghest one s the Korean won, whch s 5.68 percent. In terms of the nternatonal reserves, the share of the Japanese yen s percent and the hghest, the second hghest one s the Chnese yuan whose weght s percent, and the thrd hghest one s the Sngapore dollar, whch s 9.78 percent. The lower part of Table 1 shows the AMU weghts calculated by four types of country weghts. By usng them, we calculate the four types of AMUs vs-à-vs the basket currency accordng to the followng calculaton equaton: (1) AMU based on trade volume weght AMU= BN$ CBR CNY IDR JPY KRW LOK MLR MYK PLP SP$ TLB VTD 6 (2) AMU based on nomnal GDP weght AMU= BN$ CBR CNY IDR JPY KRW LOK MLR MYK PLP SP$ TLB VTD (3) AMU based on GDP measured at PPP weght AMU= BN$ CBR CNY IDR JPY KRW LOK MLR MYK PLP SP$ TLB VTD (4) AMU based on nternatonal reserves weght AMU= BN$ CBR CNY IDR JPY KRW LOK MLR MYK PLP SP$ TLB VTD 6 BN$=Brune dollar, CBR=Camboda rel, CNY=Chnese yuan, IDR=Indonesan rupah, JPY=Japanese yen, KRW=Korean won, LOK=Laos kp, MLR=Malaysan rnggt, MYK=Myanmar kyat, PLP=Phlppne peso, SP$=Sngapore dollar, TLB=Thaland baht, VTD=Vetnamese dong 5

7 Fgure 1 shows the estmated AMUs n terms of the basket currency composed of the US dollar and the euro durng a perod from February 1999 to November The four types of estmated AMUs have bascally moved smlarly and fluctuated wthn +/- 10 percent band for sample perod except for the AMU based on nomnal GDP weght. It s clear that the AMU based on nomnal GDP weght s the most volatle among the four types of estmated AMUs n terms of the basket currency. However, t s dffcult to choose whch type of AMU s the most stable among the four types. In order to choose the most stable AMU vs-à-vs the basket currency, we compare some statstcal ndcators of fluctuaton for them. The statstcal ndcators n Table 2 show that the AMU based on GDP measured at PPP weght s the most stable n terms of rates of change as well as levels. The AMU based on trade weght s the second most stable n term of rates of change although the AMU based on nternatonal reserve weght s the second most stable n term of levels. Accordngly, we choose both the types of AMU to calculate ndcators of devaton from a benchmark rate n the next secton because we place more weght on rates of change as a volatlty measurement. 3. Devaton of East Asan currency/amu rates from a benchmark rate In the prevous secton, we confrm that both the AMU based on GDP measured at PPP weght and the AMU based on trade weght are more desrable than the other AMUs from a vewpont of stablty of the AMU value. Therefore, we estmate these two types of AMUs, obtan exchange rates of the relevant currency n terms of the AMUs, and calculate devaton actual rates from a benchmark rate for each of the thrteen East Asan currences. At frst, we have to choose a benchmark perod when exchange rate of the East Asan currences n terms of the AMU should be a benchmark rate. We regard a stuaton where the total of trade accounts should be balanced or more close to be balanced as a benchmark. In addton, the trade surpluses for the member countres (except Japan) wth Japan and the total trade surpluses for the member countres wth rest of the world should be smallest n the benchmark perod. 7 Table 3 shows the trade balances of the thrteen East Asan countres from 7 We take nto account some tme lags n effects of the exchange rates on trade balances to use not month but year as a benchmark perod. 6

8 1999 to It ndcates that t s n 2001 that the total of trade accounts was the closest to be balanced and that the trade surpluses for the twelve non-japan East Asan countres wth Japan were the smallest. In addton, the total trade surpluses for the thrteen East Asan countres wth rest of the world were the smallest n Therefore, we choose the year of 2001 as the benchmark year n order to calculate the benchmark rate of each East Asan currency n terms of the AMUs. In the benchmark year, the exchange rate of the AMU vs-à-vs the basket currency s set to be a unty. We call exchange rates of each East Asan currency vs-à-vs the AMU n the benchmark year as a benchmark rate. We use the estmated AMUs to calculate a devaton ndcator of each East Asan currency from the AMU accordng to the followng formula: Devaton Indcator (%) = benchmark rate of a currency/amu - actual exchange rate of benchmark rate of a currency/amu a currency/amu 100 (1) Our sample perod covers from January 1, 2002 to November 29, The devaton ndcator should be 0% n the year of 2001 for each of the currences. Accordng the above formula, we calculate devaton of actual rate from the benchmark rate for both the estmated AMUs based on the GDP measured at PPP weght and trade weght Case of the AMU based on GDP measured at PPP weght The upper part of Table 4 shows the devaton ndcators for each of the East Asan currences n the case of AMU weght based on GDP measured at PPP. The weght of the Chnese yuan s percent and the hghest. The second s the weght of the Japanese yen, whch s percent. The thrd s the weght of the Korean won, whch s 7.14 percent. Thus, the characterstc of the AMU based on the GDP measured at PPP weght s that the Chnese yuan makes up almost 50 percent of weght n the AMU. The lower part of Table 4 shows devaton ndcators from the benchmark rates for each of the East Asan currences. Fgure 2 shows the movement of the devaton ndcators from January 2002 to November We fnd msalgnments among East Asan currences. The Korean won had over +10 percent of devaton from the 7

9 benchmark rate n November On one hand, the Phlppne peso had almost -20 percent of devaton from the benchmark rate n November The Indonesan rupah had the largest overvalung devaton from the benchmark rate, whch was nearly 18 percent of devaton from June to August 2003 although t has decreased 10 percent of devaton snce May The Japanese yen had over -5 percent of devaton from the benchmark rate at the begnnng of 2002 and stayed around 0 percent from July 2002 to September Then the Japanese yen has had postve devaton or apprecaton from the benchmark because t has been apprecatng aganst the US dollar. It had almost +9 percent of devaton from the benchmark rate n November The Chnese yuan and the Malaysan rnggt have moved n the same way because they have been pegged to the US dollar. They have about -7 percent of devaton from the benchmark rate n November The Sngapore dollar has had devated narrow range of +/-2.5 percent of devaton, whch s the same range as n the case of the ECU. In summary, the East Asan currences have almost 30 percent of devatons between the two most undervalung and overvalung currences n November 2004 comparng wth the benchmark rates n Case of the AMU based on trade weght The upper part of Table 5 shows the devaton ndcators for each of the East Asan currences n the case of AMU weght based on trade volume. The weght of the Japanese yen s percent and the hghest. The second s the weght of the Chnese yuan, whch s percent and the thrd s the weght of the Korean won, whch s percent. The forth s the weght of the Malaysan rnggt, whch s percent and the ffth s the weght of the Sngapore dollar, whch s percent. Thus, the characterstc of AMU based on trade weght s that the hghest weght s smaller than 30 percent and that the weghts of the fve East Asan currences are above 10 percent. They are well balanced. 8 The lower part of Table 5 shows devaton ndcators from the benchmark rates for each of the East Asan currences. Fgure 3 ndcates the movement of the devaton ndcators from January 2002 to November We fnd that the Korean won had over +10 percent of devaton from the benchmark rate whle the Phlppne peso 8 The weght of Deutsche mark n the ECU was 33.0 percent when t started n

10 had over -15 percent of devaton from the benchmark n November The other East Asan currences shows the same movements of devaton from the benchmark rate as n the case of the AMU based on GDP measured at PPP weght. However, the Chnese yuan had about -10 percent of devaton from the benchmark rate n November Ths devaton was wder than n the case of the AMU based on GDP measured at PPP weght. It s because the weght of the Chnese yuan n the AMU based on trade weght s lower than that n the AMU based on GDP measured at PPP weght. Thus, the East Asan currences have over 30 percent of devatons between the two extreme currences. There are msalgnments among the East Asan currences n recent years. 4. Nomnal and Real Devaton Indcators We should take nto account nflaton rate dfferentals f we consder real effect of exchange rates on trade, foregn drect nvestments, and real economc actvty (real GDP). We should nvestgate exchange rate ssues not only n nomnal terms but also n real terms. For the purpose, we calculate also devaton ndcators n real terms by takng nto account nflaton rate dfferentals. We call t as a real devaton ndcator n order that we should dentfy t from a nomnal devaton ndcator. Because we quote nomnal exchange rates nex of each East Asan currency n terms of the AMU, we use the nomnal exchange rates nex and the relevant rato of prces P AMU P to calculate ther real exchange rates rex accordng to the followng defnton equaton: P rex = nex AMU P currency nex AMU (2) where P AMU : prces n the AMU area, and p : prces n country. From the defnton equaton of the real exchange rates, we can calculate them n terms of rates of change accordng to the followng equaton: rex ( p p ) = nex (3) AMU where nex : rates n change of nomnal exchange rates, rex : rates n change of real exchange rates, P AMU : nflaton rate n the AMU area, and p : nflaton rate n 9

11 country. Gven that the devaton ndcator s defned as equaton (1), we calculate real devaton ndcators accordng to the followng equaton: real devaton ndcator ( P P ) = no mn al devaton ndcator (4) AMU We use CPI data as both prces and the nflaton rate n calculatng real devaton ndcator. Snce CPI data are avalable not n daly bass but n monthly bass, we calculate the real devaton ndcators only n the monthly bass. As for the nflaton rates n the AMU area, we calculate weghted CPI for the AMU area by usng the AMU weghts and CPI n the AMU member countres. 9 We calculate nomnal and real devaton ndcators n the case of AMU weght based on both GDP measured at PPP and trade volume n monthly bass. 10 Fgure 4 shows the movement of nomnal devaton ndcators n the case of AMU weght based on GDP measured at PPP. On one hand, Fgure 5 shows the movement of real devaton ndcators n the case of AMU weght based on GDP measured at PPP. Comparng nomnal devaton ndcator n Fgure 4 wth real one n Fgure 5, we can fnd dfferences between them. 11 When we look at real devaton ndcator, we fnd that nflaton makes the related currency apprecate n real terms whle deflaton makes t deprecate n real terms. For example, whle the Indonesan rupah, the Laos kp, and the Korean won have apprecatng n nomnal terms, they have larger deprecatng devaton n real terms. On one hand, whle the Phlppne peso and Vetnamese dong have over 10 percent deprecatng n nomnal terms, they have smaller deprecatng devaton n real terms. These fndngs ndcate that we have to watch both the nomnal and real devaton ndcators carefully for survellance over ntra-regonal exchange rates among the East Asan countres. Especally, the Chnese yuan has the largest deprecatng devaton n real terms n June 2003 n the case of AMU wth GDP measured at PPP (May and June 2003 n the case of AMU wth trade volume) although t has not so largely deprecatng devaton n nomnal terms. In contrast, the Japanese yen 9 Each CPI data are downloaded from Internatonal Fnancal Statstcs, IMF. 10 For the Myanmar kyat, the dfferences of CPI between Myanmar and weghted AMU countres are over 70 percent. Snce we have explaned that our data of Myanmar kyat are not the market rate and they are not reflect the actual movement, therefore we remove the Myanmar kyat from ths analyss 11 Also see the Fgure 6 and 7 for nomnal and real devaton ndcators n the case of AMU weght based on trade volume. The results are almost same. 10

12 apprecates by nearly 5 percent n 2004 n nomnal term although t stays around 0 or even deprecates n real terms due to deflaton n Japanese economy. 12 Furthermore, both Fgure 6 and Fgure 7 show that the East Asan currences have over 40 percent of devatons between the extreme currences n real terms. Msalgnments among the East Asan currences are larger n real terms than those n nomnal terms. We consder what are merts and demerts for each of both the nomnal and real devaton ndcators. From the vewpont of data frequency, nomnal devaton ndcators can be watched n real tme. We are able to use them as the ndcator of daly survellance for the monetary authortes. On the other hand, real devaton ndcators are avalable only n monthly bass and there mght be some tme lags when we obtan the real devaton ndcators. Consderng effects of exchange rate on real economc actvty such as trade balances and GDP, we should watch the devaton ndcators n real term. On one hand, consderng effects of exchange rate on monetary aspects, the nomnal devaton ndcators are enough to be concerned. Accordngly, we could use both nomnal and real devaton ndcators as an ndcator for the survellance of exchange rate polcy and the related macroeconomc varables and, n turn for makng coordnated exchange rate polces. 5. Concluson In ths paper, we estmated the four dfferent types of AMUs. They are based on trade volume n East Asa, nomnal GDP, GDP measured at PPP, and nternatonal reserves. Among them, we found that both the AMUs based on GDP measured at PPP weght and trade weght were preferable from a vewpont of stablty of the AMU. We calculated the devaton ndcators from the benchmark rates for each of the thrteen East Asan currences n the case of estmated AMUs based on the GDP measured at PPP weght and trade weght. We found that only the Sngapore dollar and the Brune dollar had +/-2.5 percent of devaton from the benchmark rates. The East Asan currences had almost 30 percent of devatons from the benchmark rates between the extreme currences n November 2004 comparng wth the benchmark rates n The varety of exchange rate systems n East Asa tends to make the large 12 For the dfferences of nomnal and real devaton ndcators of the Indonesan rupah, the Chnese yuan and the Japanese yen, please see the Fgures 8, 9, and 10, respectvely. 11

13 msalgnment among the East Asan currences. Regardng the devaton ndcators, we calculated not only n nomnal terms but also n real terms by takng nto account nflaton rate dfferentals. From the vewpont of data frequency, nomnal devaton ndcators can be watched n real tme, and we are able to use them as the ndcator of daly survellance. On the other hand, consderng effects of exchange rate on real economc actvty, we should watch the devaton ndcators n real term. Accordngly, t s necessary to watch both the nomnal and real devaton ndcators as an ndcator for survellance the coordnated exchange rate polces n East Asa. Thus, we can use the devaton ndcators of actual exchange rate of East Asan currences n terms of the AMU from the benchmark rate to dentfy how much each of the East Asan currences devates from the AMU that s equvalent to a weghted average of the East Asan currences. We can use the measurement for actve survellance process n terms of ntra-regon exchange rates n order to make coordnated exchange rate polces among the ASEAN+3. 12

14 References IMF, Drecton of Trade Statstcs, November IMF, Internatonal Fnancal Statstcs, November Jn, Mng, Hao (2003) Stablty of the Exchange Rate by the Basket of Currences n East Asa: The Examnaton of the Applcaton of the ECU Dvergence Indcator Gudelne Method n East Asa, Kenkyu-nenpo Kezagaku (Tohoku Unversty), vol. 65, (n Japanese) Ogawa, Ej and Takatosh Ito (2002) On the Desrablty of a Regonal Basket Currency Arrangement, Journal of the Japanese and Internatonal Economes, vol. 16, No. 3, Ogawa, Ej (2004) Regonal Monetary Cooperaton n East Asa aganst Asymmetrc Responses to the US Dollar Deprecaton, Journal of the Korean Economy, vol. 5, No. 2, Tanaka, Soko and Sech Fujta (2003) Euro to kokusa-tsuuka system (Euro and the nternatonal currency system), Sotensha publshng. (n Japanese) Tanaka, Soko and Jn Mng Hao (2004) Dollar, euro, yen no tsuka Basket nyoru hgash Asa no kawase souba kyoryoku (The foregn exchange coordnaton by the currency basket composed wth the US dollar, the euro and the Japanese yen n East Asan countres), Sekakeza-hyoron, November, (n Japanese) World Bank, World Development Report, 1999, 2000, 2001, 2002, 2003,

15 Table 1. Indcators of AMU weghts and calculated AMU weghts (AMU vs-à-vs the basket currency*) Exchange Rate currency unts for 1basket currency* ave. of Jan 1999 BRUNEI $ <Indcators of AMU weghts, %> CAMBODIA RIEL CHINESE YUAN INDONESIAN RUPIAH JAPANESE YEN KOREAN WON LAOS KIP MALAYSIAN RINGGIT MYANMAR KYAT PHILIPPINE PESO SINGAPORE $ THAI BAHT VIETNAMESE DONG Share of trade volume Share of Nomnal GDP Share of GDP measured at PPP Share of Internatonal Reserves <AMU weghts> Share of trade volume Share of Nomnal GDP Share of GDP measured at PPP Share of Internatonal Reserves Notes: All fgures are calculated by authors. Nomnal GDP and Internatonal Reserves (mnus Gold) data are from Internatonal Fnancal Statstcs, IMF. All trade data are from Drecton of Trade of IMF. GDP measured at ppp are from World Development Report, World Bank. All exchange rates are from Datastream. Indcators of AMU weghts are calculated by the data n * The basket currency s composed by the US dollar and the euro. The basket weght s depend on the trade share of each country/area aganst 13 sampled East Asan countres. Each weghts s 51.7% and 48.3% for the US dollar and the euro, respectvely. 14

16 Table 2. Fluctuaton of estmated AMU vs-à-vs the basket currency* Share of trade volume Share of Nomnal GDP Share of GDP measured at PPP Share of Internatonal Reserves <level> max mn average std. dev <rate of change, %> max mn average std. dev Notes: All fgures are calculated by authors. * The basket currency s composed by the US dollar and the euro. The basket weght s depend on the trade share of each country/area aganst 13 sampled East Asan countres. Each weghts s 51.7% and 48.3% for the US dollar and the euro, respectvely. Table 3. Trade account (net) wthn 13 East Asan countres 13 East Asan countres wth Japan * -32,065-37,239-23,997-40,027-55,724 wthn 13 East Asan countres 4,819-6,562 1,953 12,289 27,727 wth World Total 215, , , , ,868 (unt: mllon of US dollar) Notes: All fgures are calculated by authors. Trade data are from Drecton of Trade (IMF). * The fgure of current account wth Japan s the total amount of current account(net) wth 12 East Asan countres. 15

17 Table 4. The devaton ndcators for each of the East Asan currences n the case of AMU weght based on GDP measured at PPP (%) BRUNEI $ CAMBODIA RIEL CHINESE YUAN INDONESIAN RUPIAH JAPANESE YEN KOREAN WON LAOS KIP MALAYSIAN RINGGIT MYANMAR KYAT PHILIPPINE PESO SINGAPORE $ THAI BAHT VIETNAMESE DONG benchmark rate/amu* GDP measured at PPP (bllon of US$) share based on GDP measured at PPP AMU weghts <The devaton ndcators from the benchmark rates, %> average std.dev max mn Notes: All fgures are calculated by authors. *Each currency's benchmark rate/amu s the average of currency/basket rate n

18 Table 5. The devaton ndcators for each of the East Asan currences n the case of AMU weght based on trade volume (%) BRUNEI $ CAMBODIA RIEL CHINESE YUAN INDONESIAN RUPIAH JAPANESE YEN KOREAN WON LAOS KIP MALAYSIAN RINGGIT MYANMAR KYAT PHILIPPINE PESO SINGAPORE $ THAI BAHT VIETNAMESE DONG benchmark rate/amu* trade volume (bllon of US$) share based on trade volume AMU weghts <The devaton ndcators from the benchmark rates, %> average std.dev max mn Notes: All fgures are calculated by authors. *Each currency's benchmark rate/amu s the average of currency/basket rate n

19 AMU v.s. basket currency Jan 1999= Fgure 1. The estmated AMU vs-à-vs the basket currency Feb 1999-Nov /2/1 1999/4/1 1999/6/1 1999/8/1 1999/10/1 1999/12/1 2003/12/1 2000/2/1 2000/4/1 2000/6/1 2000/8/1 2000/10/1 2000/12/1 2001/2/1 2001/4/1 2001/6/1 2001/8/1 2001/10/1 2001/12/1 2002/2/1 2002/4/1 2002/6/1 2002/8/1 2002/10/1 2002/12/1 2003/2/1 2003/4/1 2003/6/1 2003/8/1 2003/10/1 2004/2/1 2004/4/1 2004/6/1 2004/8/1 2004/10/1 AMU-trade volume weght AMU-nomnal GDP weght AMU-GDP measured at ppp weght AMU-nternatonal reserve weght AMU-nomnal GDP weght AMU-GDP measured at ppp weght AMU-nternatonal reserve weght AMU-trade volume weght

20 Fgure2. The movement of the devaton ndcators from January 2002 to November 2004 (n the case of AMU weght based on GDP measured at PPP) /1/1 2002/2/1 2002/3/1 2002/4/1 2002/5/1 2002/6/1 2002/7/1 2002/8/1 2002/9/1 2002/10/1 2002/11/1 2002/12/1 2003/1/1 2003/2/1 2003/3/1 2003/4/1 2003/5/1 2003/6/1 2003/7/1 2003/8/1 2003/9/1 2003/10/1 2003/11/1 2003/12/1 2004/1/1 2004/2/1 2004/3/1 2004/4/1 2004/5/1 2004/6/1 2004/7/1 2004/8/1 2004/9/1 2004/10/1 2004/11/1 (%) Indonesan rupah Japanese yen Korean won Sngapore$ Brune$ Tha baht Myanmar kyat Malaysan rnggt Chnese yuan Laos kp Camboda rel Vetnamese dong Phlppne peso BRUNEI $ CAMBODIA RIEL CHINESE YUAN INDONESIAN RUPIAH JAPANESE YEN KOREAN WON LAOS KIP MALAYSIAN RINGGIT MYANMAR KYAT PHILIPPINE PESO SINGAPORE $ THAI BAHT VIETNAMESE DONG

21 Fgure3. The movement of the devaton ndcators from January 2002 to November 2004 (n the case of AMU weght based on trade volume) /1/1 2002/2/1 2002/3/1 2002/4/1 2002/5/1 2002/6/1 2002/7/1 2002/8/1 2002/9/1 2002/10/1 2002/11/1 2002/12/1 2003/1/1 2003/2/1 2003/3/1 2003/4/1 2003/5/1 2003/6/1 2003/7/1 2003/8/1 2003/9/1 2003/10/1 2003/11/1 2003/12/1 2004/1/1 2004/2/1 2004/3/1 2004/4/1 2004/5/1 2004/6/1 2004/7/1 2004/8/1 2004/9/1 2004/10/1 2004/11/1 (%) Indonesan rupah Japanese yen Korean won Tha baht Sngapore$ B $ Myanmar kyat Malaysan rnggt Chnese yuan Camboda rel Laos Vetnamese dong Phlppne peso BRUNEI $ CAMBODIA RIEL CHINESE YUAN INDONESIAN RUPIAH JAPANESE YEN KOREAN WON LAOS KIP MALAYSIAN RINGGIT MYANMAR KYAT PHILIPPINE PESO SINGAPORE $ THAI BAHT VIETNAMESE DONG

22 25.0 (%) Fgure4. The movement of nomnal devaton ndcators from January 2002 to November 2004 (n the case of AMU weght based on GDP measured at PPP, monthly change) Indonesan rupah BRUNEI $ CAMBODIA RIEL 10.0 Japanese yen Korean won CHINESE YUAN INDONESIAN RUPIAH 5.0 JAPANESE YEN Tha baht KOREAN WON Sngapore$ Brune$ Malaysan rnggt Chnese yuan Camboda rel Laos kp Vetnamese dong LAOS KIP MALAYSIAN RINGGIT PHILIPPINE PESO SINGAPORE $ THAI BAHT Phlppne peso VIETNAMESE DONG / /2004 9/2004 8/2004 7/2004 6/2004 5/2004 4/2004 3/2004 2/2004 1/ / / /2003 9/2003 8/2003 7/2003 6/2003 5/2003 4/2003 3/2003 2/2003 1/ / / /2002 9/2002 8/2002 7/2002 6/2002 5/2002 4/2002 3/2002 2/2002 1/

23 35.0 (%) Fgure 5. The movement of real devaton ndcators from January 2002 to November 2004 (n the case of AMU weght based on GDP measured at PPP, monthly change) Indonesan rupah BRUNEI $ CAMBODIA RIEL CHINESE YUAN 20.0 Laos kp INDONESIAN RUPIAH 15.0 JAPANESE YEN 10.0 Korean won KOREAN WON LAOS KIP Japanese yen Sngapore $ Brune$ Vetnamese dong Tha baht MALAYSIAN RINGGIT PHILIPPINE PESO SINGAPORE $ THAI BAHT -5.0 Chnese yuan Malaysan rnggt VIETNAMESE DONG Phlppne peso Camboda rel /2004 6/2004 5/2004 4/2004 3/2004 2/2004 1/ / / /2003 9/2003 8/2003 7/2003 6/2003 5/2003 4/2003 3/2003 2/2003 1/ / / /2002 9/2002 8/2002 7/2002 6/2002 5/2002 4/2002 3/2002 2/2002 1/

24 25.0 (%) Fgure6. The movement of nomnal devaton ndcators from January 2002 to November 2004 (n the case of AMU weght based on trade volume, monthly change) 20.0 BRUNEI $ 15.0 Indonesan rupah CAMBODIA RIEL CHINESE YUAN Japanese yen Korean won INDONESIAN RUPIAH JAPANESE YEN 0.0 Tha baht KOREAN WON LAOS KIP Sngapore $ Brune$ Malaysan rnggt Chnese yuan Laos kp Camboda rel Vetnamese dong MALAYSIAN RINGGIT PHILIPPINE PESO SINGAPORE $ THAI BAHT VIETNAMESE DONG Phlppne peso / /2004 9/2004 8/2004 7/2004 6/2004 5/2004 4/2004 3/2004 2/2004 1/ / / /2003 9/2003 8/2003 7/2003 6/2003 5/2003 4/2003 3/2003 2/2003 1/ / / /2002 9/2002 8/2002 7/2002 6/2002 5/2002 4/2002 3/2002 2/2002 1/

25 (%) Fgure7. The movement of real devaton ndcators from January 2002 to November 2004 (n the case of AMU weght based on trade volume, monthly change) 30.0 Indonesan rupah BRUNEI $ CAMBODIA RIEL 20.0 CHINESE YUAN Laos kp INDONESIAN RUPIAH JAPANESE YEN 10.0 Korean won KOREAN WON LAOS KIP Japanese yen Tha baht MALAYSIAN RINGGIT 0.0 Sngapore $ Brune$ PHILIPPINE PESO SINGAPORE $ Chnese yuan Vetnamese dong Camboda rel Malaysan rnggt THAI BAHT VIETNAMESE DONG Phlppne peso /2004 6/2004 5/2004 4/2004 3/2004 2/2004 1/ / / /2003 9/2003 8/2003 7/2003 6/2003 5/2003 4/2003 3/2003 2/2003 1/ / / /2002 9/2002 8/2002 7/2002 6/2002 5/2002 4/2002 3/2002 2/2002 1/

26 Fgure8. Nomnal v.s. Real Indcator <Indonesan rupah> (%) 35 Nomnal Indcator Real Indcator 30 Real Indcator Nomnal Indcator (%) /2002 2/2002 1/2002 2/2002 3/2002 4/2002 5/2002 6/2002 7/2002 8/2002 9/ / / /2002 1/2003 2/2003 3/2003 Fgure9. Nomnal v.s. Real Indcator <Chnese yuan> Nomnal Indcator 3/2002 4/2002 5/2002 6/2002 7/2002 8/2002 9/ / / /2002 1/2003 2/2003 3/2003 4/2003 5/2003 6/2003 Real Indcator Real Indcator 4/2003 5/2003 6/2003 7/2003 8/2003 9/ / / /2003 1/2004 2/2004 3/2004 4/2004 5/2004 7/2003 8/2003 9/ / /2003 Nomnal Indcator 12/2003 1/2004 2/2004 3/2004 4/2004 5/2004 6/2004 7/2004 6/2004 7/

27 Fgure10. Nomnal v.s. Real Indcator <Japanese yen> (%) /2002 2/2002 3/2002 4/2002 5/2002 6/2002 7/2002 8/2002 9/ / / /2002 1/2003 2/2003 3/2003 4/2003 5/2003 6/2003 7/2003 8/2003 9/ /2003 Nomnal Indcator Real Indcator Nomnal Indcator Real Indcator 11/ /2003 1/2004 2/2004 3/2004 4/2004 5/2004 6/2004 7/2004 Appendx: The devaton ndcator from benchmark rate (%) The Actual ex rate vs-à-vs AMU s stronger than the benchmark rate vs-à-vs AMU the actual ex rate = the benchmark rate 0 Jan 2002 Nov 2004 The Actual ex rate vs-à-vs AMU s weaker than the benchmark rate vs-à-vs AMU 26