This paper examines how an appreciation of the currency of the People’s Republic of China (PRC)—renminbi—affects the country’s exports in the context of production fragmentation, using a panel data set of the PRC’s trade for 1992/93–2008/09. It constructs two exchange rates for...

This paper examines whether the renminbi (RMB) has supplanted the US dollar as the major anchor currency in the currency baskets of East Asian economies. It systematically demonstrates that existing techniques to address the problem of severe multicollinearity in estimations of the...

An Asian Currency Unit (ACU) index is constructed using an alternative procedure which minimizes a basket or portfolio of assets expressed in terms of national currencies. Using this estimated ACU Index and an ACU Deviation Indicator, the main finding of this study based on the current...

This paper discusses Japan's strategy for Asian monetary integration. It argues that Japan faces three major policy challenges when promoting intraregional exchange rate stability. First, there must be some convergence of exchange rate regimes in East Asia, and the most realistic option is for...

This paper reviews the history of East Asian monetary policy frameworks since 1990; describes current monetary policy frameworks, including issue of price versus financial stability for a central bank and the policies a central bank can use to manage financial stability; the monetary policy...

The authors develop a new set of indexes of exchange rate stability, monetary policy independence, and financial market openness as the metrics for the trilemma hypothesis. In their exploration, they take a different and more nuanced approach than the previous indexes developed by Aizenman,...

With the rise of the People's Republic of China (PRC) as the world's largest trading nation (measured by trade value) and second largest economic power (measured by GDP), its economic influence over the neighboring emerging economies in East Asia has also risen. The PRC introduced some exchange...

Japan’s “two lost decades” perhaps represent an extreme example of a weak recovery from a financial crisis, and are now referred to as “Japanization.” More recently, widespread stagnation in advanced economies in the wake of the global financial crisis led to fears that Japanization...

This paper presents a theoretical framework for policy making based on the “impossible trinity” or the “trilemma” hypothesis. A simple optimization model shows that placing more weight in terms of preference for each of the three open macroeconomic policies—exchange rate stability,...

Since the 1980s, emerging countries have been urged to welcome foreign capital inflows. The result has often been a pattern of surges, where excessive inflows were followed by damaging “sudden stops” and reversals. What is needed is a strategy that makes use of the potential benefits of...