Before the Fall: Were East Asian Currencies Overvalued?

UCSC Dept. of Economics Working Paper No. 391

Posted: 16 Jul 1998

See all articles by Menzie David Chinn

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: February 1998

Abstract

The concept of purchasing power parity is used as a measure of the equilibrium real exchange rate to evaluate whether seven East Asian currencies were overvalued: the Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, Taiwanese dollar and the Thai baht. The purchasing power parity calculations are performed on broad price indices, price indices of tradable goods, and price indices of export goods using the Johansen and Horvath-Watson cointegration test procedures. The baht, ringgit and peso were overvalued, as of May 1997, according to this criterion. The implied deviations are compared against those obtained using simple trends in consumer price index deflated real rates. I also estimate implied equilibrium rates from monetary models augmented by proxies for productivity trends. This monetary model implies less significant deviations from equilibrium.

JEL Classification: F31, F41, F47

Suggested Citation

Chinn, Menzie David, Before the Fall: Were East Asian Currencies Overvalued? (February 1998). UCSC Dept. of Economics Working Paper No. 391, Available at SSRN: https://ssrn.com/abstract=108128

Menzie David Chinn (Contact Author)

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

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