Publication Type
Working Paper
Version
publishedVersion
Publication Date
3-2007
Abstract
This paper considers whether an intra-regional currency basket and the associated divergence indicators could play a useful role in official exchange rate surveillance. Recently, proponents of an Asian currency basket have referred to the role the European Currency Unit played in constructing exchange rate divergence indicators as evidence of the usefulness of intra-regional currency baskets for exchange rate monitoring. The paper shows that such indicators have a number of features that can lead to them obscuring underlying changes in exchange rates and that the signals they emit will often be difficult to interpret. In addition, the use of regional currency baskets for surveillance can lead to potentially serious N-1 problems in circumstances when there is not agreement about which regional currencies will be the anchor currencies. An intra regional currency basket and the associated divergence indicators will be a rudderless beacon for surveillance unless there is agreement about anchors.
Keywords
Regional Currency Basket; Exchange Rate Divergence Indicators;Surveillance
Discipline
Asian Studies | Finance | Macroeconomics
Research Areas
Macroeconomics
First Page
1
Last Page
36
Publisher
SMU Economics and Statistics Working Paper Series, No. 2-2007
City or Country
Singapore
Citation
ADAMS, Charles and CHOW, Hwee Kwan.
Asian Currency Baskets: A Useful Surveillance Tool?. (2007). 1-36.
Available at: https://ink.library.smu.edu.sg/soe_research/1008
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Included in
Asian Studies Commons, Finance Commons, Macroeconomics Commons
Comments
Presented at Far Eastern Meeting of the Econometric Society 2007, July 11-13, Taipei