Synchronized Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate

HKIMR Working Paper No. 02/2003

23 Pages Posted: 4 Sep 2007  

Ronald McKinnon

Stanford University, School of Humanities & Sciences, Department of Economics (Deceased); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) (Deceased)

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Date Written: January 2003

Abstract

Because many authors have proposed stimulating the ailing Japanese economy by monetary expansion and yen depreciation, we explore the repercussions of depreciating the yen against the dollar on the other East Asian economies - which largely peg to the dollar. Since 1980, economic integration among Japan's neighbors - China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, and Thailand - has intensified and (except for China) their business cycles have been highly synchronized. These cycles have been closely linked to fluctuations in the yen/dollar exchange rate - through changes in their export competitiveness and inflows of foreign direct investment. We show that a major yen devaluation would have a negative impact on incomes in other East Asian economies and that it is not a sensible policy option for Japan.

Suggested Citation

McKinnon, Ronald and Schnabl, Gunther, Synchronized Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate (January 2003). HKIMR Working Paper No. 02/2003. Available at SSRN: https://ssrn.com/abstract=1009372 or http://dx.doi.org/10.2139/ssrn.1009372

Ronald McKinnon (Contact Author)

Stanford University, School of Humanities & Sciences, Department of Economics (Deceased)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) (Deceased)

Gunther Schnabl

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Stra├če 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

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