Dynamic Shift to a Basket-Peg or Floating Regime in East Asian Countries in Response to the People's Republic of China's Transition to a New Exchange Rate Regime
Yoshino, Naoyuki; Kaji, Sahoko; Asonuma, Tamon | February 2015
Abstract
This paper analyzes a desirable transition path for East Asian countries given the People’s Republic of China’s (PRC’s) transition to a new exchange rate regime. It attempts to answer two main questions: (i) Would these countries be better off shifting to either a basket peg or a floating regime following the PRC’s transition to a basket peg regime? (ii) How and when should these countries shift to the desired regime? The paper captures the influence of the PRC’s predetermined shift in its exchange rate regime on East Asian countries’ decisions regarding their optimal transition policies based on a dynamic stochastic general equilibrium (DSGE) model of a small open economy. Our calibration exercise using Malaysian and Singapore data from the first quarter (Q1) of 2000 to Q4 2012 reveals that a gradual adjustment to a basket peg is the most desirable policy for both countries. A sudden shift to a basket peg is superior to maintaining a dollar peg in Malaysia, but not in Singapore. Finally, a sudden shift to a floating regime is even worse than maintaining a dollar peg in both countries.
Citation
Yoshino, Naoyuki; Kaji, Sahoko; Asonuma, Tamon. 2015. Dynamic Shift to a Basket-Peg or Floating Regime in East Asian Countries in Response to the People's Republic of China's Transition to a New Exchange Rate Regime. © Asian Development Bank. http://hdl.handle.net/11540/3982. License: CC BY 3.0 IGO.Keywords
Development Economics
Regional Economic Development
Economic Impact
Asian Development Bank
Development
Economic Boom
Regional Economic Integration
Good Governance
Governance Approach
Economic planning
Economic structure
Growth policy
Trade relations
Trade policy
Trade policy
Economic development
Economies in transition
International economy
Border integration
Economic integration
Gross domestic product
Trade policy
Institutional Framework
Public Administration
Business Ethics
Regional economics
Economic forecasting
Economic development projects
Success in business
Business
Free trade
Business
Economics
Communication in economic development
Restraint of trade
International economic integration
Trade blocs
East-West trade
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