Macroeconomic Management and Financial Stability: The Implications for East Asia

IMPACT AND COHERENCE OF OECD COUNTRY POLICIES ON ASIAN DEVELOPING ECONOMIES, Kiichiro Fukasaku, Masahiro, Kawai, Michael Plummer, eds., Forthcoming

La Follette School Working Paper Series No. 2004-001, http://www.lafollette.wisc.edu/publications/workingpapers

57 Pages Posted: 16 Sep 2005

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)

Abstract

This paper examines the determinants of economic and financial linkages between developed and developing countries, with special focus on East Asia. The synchronization of business cycles depends upon trade flows, production structures, and to a lesser extent, capital account openness. The correlation of stock and bond returns in emerging markets also depends upon trade flows. There does not appear to be a statistically significant difference between the behavior of East Asian economies and developing countries in other parts of the world. Finally, the analysis confirms that dollar movements have a large effect upon East Asian competitiveness, especially in the years leading up to the crises of 1997-1998. However, the effect of dollar/euro movements appears to be larger than that of dollar/yen movements, contrary to expectations. In the post-crisis period, only the Chinese yuan conforms to the general presumption that dollar/yen fluctuations have a dominant impact on East Asian effective exchange rates. The paper discusses some recent efforts to reform the international financial architecture. The conclusion discusses the prospects for adjustment in light of the empirical relationships identified.

Keywords: Macroeconomic linkages, trade flows, financial integration, international financial architecture, international adjustment

JEL Classification: F41, F42, G15

Suggested Citation

Chinn, Menzie David, Macroeconomic Management and Financial Stability: The Implications for East Asia. IMPACT AND COHERENCE OF OECD COUNTRY POLICIES ON ASIAN DEVELOPING ECONOMIES, Kiichiro Fukasaku, Masahiro, Kawai, Michael Plummer, eds., Forthcoming, La Follette School Working Paper Series No. 2004-001, http://www.lafollette.wisc.edu/publications/workingpapers, Available at SSRN: https://ssrn.com/abstract=805484

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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