The Usual Suspects?: Productivity and Demand Shocks and Asia-Pacific Real Exchange Rates

UCSC Economics Dept. WP #371

Posted: 10 Apr 1997

See all articles by Menzie David Chinn

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: March 1997

Abstract

In this paper the evidence for a productivity-based explanation for real exchange rate behavior of East Asian currencies is examined. Using sectoral output and employment data, relative prices and relative productivities are calculated for China, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. Time series regressions of the real exchange rate on relative prices indicate a role for relative prices for Indonesia, Japan and Korea. When examining real exchange rates and relative productivity ratios, one finds a relationship for Japan, Malaysia, and the Philippines. However, only when augmenting the regressions with real oil prices are significant relationships obtained for Indonesia and Korea. Panel regression results are slightly more supportive of a relative price view of real exchange rates. However, the panel regressions incorporating productivity variables, as well as other demand side factors, are less encouraging, except for a small subset of countries (Indonesia, Japan, Korea, Malaysia and the Philippines). Surprisingly, government spending does not appear to be a determinant of real exchange rates in the region.

JEL Classification: F31, F41

Suggested Citation

Chinn, Menzie David, The Usual Suspects?: Productivity and Demand Shocks and Asia-Pacific Real Exchange Rates (March 1997). UCSC Economics Dept. WP #371, Available at SSRN: https://ssrn.com/abstract=4811

Menzie David Chinn (Contact Author)

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

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