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
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: Suggested Citation