ERI Discussion Paper Series No.66
Real and Financial Linkage in Pacific-Asia

October 1996
Toshie Ikenaga
(Economic Planning Agency)

(Abstract)

The "deepening" of economic integration in Pacific-Asia has been promoted by the interaction between growing real and financial transactions.

The deepening of financial linkage would enhance the possibility that real interest parity might hold through arbitrage transactions with greater capital mobility. This paper tries to examine influential power of the Japanese yen and interest rate in financial linkage in Pacific-Asia in comparison with the US dollar or Deutsche mark.

In concluding, the empirical analysis suggests that the Japanese yen doesn't seem to be treated as the target currency nor is the Japanese real interest rate taken into account in arbitrage transactions very much. Most Pacific-Asian currencies are officially linked to either the US dollar or a trade-weighted basket. All countries assign the greatest weight to the US dollar. In the 1990s, however, some countries such as Korea and Singapore seem to reduce weights on the US dollar and increase weight on the Japanese yen or the Deutsche mark in comparison with the latter of the 1980s. For every country, the nominal and real exchange rates against the Japanese yen seem less stable and more volatile than those against the US dollar and even against the Deutsche mark for the most period since the latter half of the 1980s. In the 1990s, while every currency appreciated in real terms against the US dollar, none of them depreciated so much in real terms as nominal terms against the Japanese yen. These differences are however hardly statistically significant. Neither the Japanese nor the US real interest rate individually seems to have dominant influence on the Pacific-Asian interest rates and correlation varies according to country and period.


Structure of the whole text

  1. Abstract別ウィンドウで開きます。(PDF-Format 225 KB)
  2. page1
    I. INTRODUCTION
  3. page4
    II. INFLUENTIAL POWER OF THE JAPANESE YEN IN EXCHANGE RATE MOVEMENT IN PACIFIC-ASIA
    1. page5
      1. Exchange rate system in each country
    2. page9
      2. Nominal exchange rate fluctuation
    3. page11
      3. Real exchange rate movement
  4. page14
    III. CORRELATION IN INTEREST RATES
  5. page17
    IV. CONCLUSION
  • 1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.
    Tel: +81-3-5253-2111