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

22 Pages Posted: 8 Oct 2003  

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

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 neighbours - China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand - has intensified and (except for China and Singapore) their business cycles have been highly synchronised. These cycles have been closely linked to fluctuations in the yen/dollar exchange rate - through changes in the export competitiveness, inflows of foreign direct investment and intra-Asian income effects. 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, Synchronised Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate. World Economy, Vol. 26, pp. 1067-1088, August 2003. Available at SSRN: https://ssrn.com/abstract=443781

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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