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

38 Pages Posted: 15 Aug 2016

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Kefei You

University of Greenwich

Date Written: 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: F31, C22, ASEAN currencies, Chinese RMB, US dollar peg, fractional integration, breaks

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and You, Kefei, Exhange Rate Linkages between the ASEAN Currencies, the US Dollar and the Chinese RMB (2016). Bank of Finland Research Discussion Paper No. 20/2016, Available at SSRN: https://ssrn.com/abstract=2822732

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
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United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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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