This paper estimates the effect of real exchange rate changes on East Asian exports.

What is it about?

This paper estimates the impact of intra-regional real exchange rate flexibility on East Asian exports. The hypothesis is that the impact would be negative for East Asian countries regardless of their exchange rate regimes. The results validate the hypothesis. The findings show that for Chinese exports the long-run effect is as much as that of a real appreciation of Renminbi. By contrast, for Japanese exports the effect is three-times larger than that of a real appreciation of Yen. The findings imply that a regional currency basket mechanism would lessen the adverse effect of exchange rate flexibility and engineer a collective exchange rate adjustment for resolving global payment imbalance against East Asia.

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Photo by Marek Studzinski on Unsplash

Photo by Marek Studzinski on Unsplash

Why is it important?

The study bears significant policy implications for East Asian countries in general and for a regional exchange rate management in particular.