Exchange rate regime and exchange rate performance: evidence from East Asia.
PhD thesis, University of Glasgow.
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This thesis is intended to be part of a vigorous debate currently going on in the international community of exchange rate regime, monetary policy and related core issues in East Asian economies. From different angles and aspects, this thesis contributes to the related literature, and provides fresh theoretical arguments and comprehensive study on the exchange rate regime and exchange rate performance in East Asia.
This thesis firstly investigates the performance and characteristics of exchange rate regimes in a group of East Asian economies during the 1990s. The determination of local currency, the flexibility of exchange rate regime, as well as the regional coordination of exchange rate management have been thoroughly examined. This thesis then considers the implications of exchange rate regimes on the monetary policy. It examines whether the adoption of new exchange rate regime has affected monetary autonomy, concerning the sensitivity of domestic interest rates to international interest rates under different currency regimes, from the cases of the selected East Asian economies during 1994-2004. One of the aspects of the choices of exchange rate regime is its implications for the magnitude of exchange rate volatility and the transmission of this volatility into other countries in the region. This thesis thus carries out an empirical investigation on the exchange rate volatility and cross-country contagion/spillover effect within foreign exchange markets for a group of East Asian countries in the context of the 1997/98 financial crisis. In addition, this thesis provides an investigation on the measurement of foreign exchange market pressure and currency crisis proneness, as well as examines interrelations between exchange market pressure and monetary policy. The post-crisis interactions among EMP, domestic credit growth, and the interest rate differential between domestic and foreign interest rates, in particular, have been investigated for a representative group of East Asian countries. Finally, this thesis provides further evidence on the relationship between stock prices and exchange rates, from the typical case of Hong Kong, to realise what kind of causality prevailed over the period 1995-2001. Based on the high frequency weekly data, both long-run and short-run dynamics between stock prices and exchange rates in Hong Kong are addressed.
Various forms of evidence and empirical techniques are extensively applied and fully evaluated for the specific questions addressed in this research. These practical methodologies include Ordinary Least Square (OLS), Generalised Method of Movements (GMM), Generalised Autoregressive Conditional Heteroskedasticity (GARCH), Exponential GARCH (EGARCH), Vector Autoregressions (VAR) and their Impulse Response Functions (IRF), Unit Root Tests, Cointegration, and Granger Causality Tests. All kinds of data sets and sample periods employed in this research provide an interesting comparison to the existing related studies.
The main findings and key ideas drawn from this research have important implications for policy markers on the exchange rate management. The study on specific research topics and the comprehensive and thorough applications of various econometric methodologies provide valuable insight in characteristics and patterns of East Asian foreign exchange markets.
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