How Did the Dollar Peg Fail in Asia?

68 Pages Posted: 18 Oct 1998 Last revised: 13 May 2000

See all articles by Takatoshi Ito

Takatoshi Ito

University of Tokyo - Faculty of Economics; National Bureau of Economic Research (NBER); Ministry of Finance, Tokyo

Eiji Ogawa

Hitotsubashi University; Research Institute of Economy, Trade and Industry (RIETI)

Yuri Nagataki Sasaki

Takachiho University - Department of Commerce

Date Written: August 1999

Abstract

In this paper we have constructed a theoretical model in which Asian firms maximize their profit, competing with Japanese and US firms in their markets. The duopoly model is used to determine export prices and volumes in response to the exchange rate fluctuations vis-...-vis the Japanese yen and the US dollar. Then, the optimal basket weight to minimize the fluctuation of the growth rate of trade balance is derived. These are the novel features of our model. The export price equation and export volume equation are estimated for several Asian countries for the sample period of 1981 to 1996. Results are generally reasonable. The optimal currency weights for the yen and the US dollars are derived and compared with actual weights that had been adopted before the currency crisis of 1997. For all the countries in the sample, it is shown that the optimal weight of the yen is significantly higher than the actual weight.

Suggested Citation

Ito, Takatoshi and Ogawa, Eiji and Sasaki, Yuri Nagataki, How Did the Dollar Peg Fail in Asia? (August 1999). NBER Working Paper No. w6729. Available at SSRN: https://ssrn.com/abstract=131406

Takatoshi Ito (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
81-425-80-8356 (Phone)
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Ministry of Finance, Tokyo ( email )

3-1-1, Kasumigaseki, Chiyoda-ku
100-8940 Tokyo
Japan
+81-3-3581-4720 (Phone)
+81-3-5251-2144 (Fax)

Eiji Ogawa

Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8601
Japan

Research Institute of Economy, Trade and Industry (RIETI) ( email )

1-3-1 Kasumigaseki
Chiyoda-ku
Tokyo 100-8901
Japan

Yuri Nagataki Sasaki

Takachiho University - Department of Commerce

Suginami, Tokyo 168
Japan

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