Exchange Rate Linkages between the ASEAN Currencies, the US Dollar and the Chinese RMB

37 Pages Posted: 13 Jul 2016

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University - Centre for Empirical Finance

Luis A. Gil-Alana

University of Navarra - Department of Economics

Kefei You

University of Greenwich

Date Written: June 2016

Abstract

This paper investigates whether the RMB is in the process of replacing the US dollar as the anchor currency in nine ASEAN countries, and also the linkages between the ASEAN currencies and a regional currency unit. A long-memory (fractional integration) model allowing for endogenously determined structural breaks is estimated for these purposes (Gil-Alana, 2008). The results suggest that the ASEAN currencies are much more interlinked than previously thought, whether or not breaks are taken into account, which provides support for a regional currency index as an anchor. Moreover, incorporating a break shows that the linkages between these currencies and the RMB and the US dollar respectively are equally important, and in fact in recent years the former have become stronger than the latter. Therefore including the RMB in the regional index should be considered.

Keywords: ASEAN Currencies, Chinese RMB, US Dollar Peg, Fractional Integration, Breaks

JEL Classification: F31, C22

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and You, Kefei, Exchange Rate Linkages between the ASEAN Currencies, the US Dollar and the Chinese RMB (June 2016). DIW Berlin Discussion Paper No. 1590. Available at SSRN: https://ssrn.com/abstract=2808486 or http://dx.doi.org/10.2139/ssrn.2808486

Guglielmo Maria Caporale (Contact Author)

Brunel University - Centre for Empirical Finance ( email )

Uxbridge UB8 3PH
United Kingdom

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Kefei You

University of Greenwich ( email )

30 Park Row
Greenwich
London, SE10 9LS
United Kingdom

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