Co-Integration Among Asian Currencies: Evidence of the Increasing Influence of the Japanese Yen

Abstract:     
This is a study of the co-integration between the Japanese yen and two sets of Asian currencies, i.e., currencies of the "Tigers"--Hong Kong, South Korea, Singapore, and Taiwan--and currencies of the ASEAN nations--Malaysia, Philippines, Thailand, and Singapore. Accounting for deviations from normality, non-stationarity, and the presence of unit roots for periods longer than other co-integration studies, it is documented that, in contrast to the findings for the major currencies, both sets of Asian currencies are found to be co- integrated with the Japanese yen. Further, it is found that the influence of the Japanese yen has been increasing relative to the U.S. dollar in recent years. This evidence of co-integration between the yen and other Asian currencies has important implications for understanding Asian financial integration, the increasing international role of the Japanese yen, and for developing asset allocation and cross- hedging strategies for investments denominated in these Asian currencies.

JEL Classification: F15, F31, F36

Accepted Paper Series