Before the Fall: Were East Asian Currencies Overvalued?
UCSC Dept. of Economics Working Paper No. 391
Posted: 16 Jul 1998
There are 2 versions of this paper
Before the Fall: Were East Asian Currencies Overvalued?
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: Suggested Citation