real and financial linkage in pacific-asia

Discussion Paper No. 66

Real and Financial Linkage in Pacific-Asia

by

Toshie IKENAGA

Economic Planning Agency

October 1996

Economic Research Institute


Tokyo, Japan

The views expressed here are the author’s and do not

represent those of the Economic Planning Agency

i

Abstract

The "deepening" of economic integration in Pacific-Asia has been promoted

by the interaction between growing real and financial transactions.

The deepening of financial linkage would enhance the possibility that real

interest parity might hold through arbitrage transactions with greater capital

mobility. This paper tries to examine influential power of the Japanese yen and

interest rate in financial linkage in Pacific-Asia in comparison with the US dollar

or Deutsche mark.

In concluding, the empirical analysis suggests that the Japanese yen

doesn’t seem to be treated as the target currency nor is the Japanese real interest

rate taken into account in arbitrage transactions very much. Most Pacific-Asian

currencies are officially linked to either the US dollar or a trade-weighted basket.

All countries assign the greatest weight to the US dollar. In the 1990s, however,

some countries such as Korea and Singapore seem to reduce weights on the US

dollar and increase weights on the Japanese yen or the Deutsche mark in

comparison with the latter of the 1980s. For every country, the nominal and real

exchange rates against the Japanese yen seem less stable and more volatile than

those against the US dollar and even against the Deutsche mark for the most

period since the latter half of the 1980s. In the 1990s, while every currency

appreciated in real terms against the US dollar, none of them depreciated so much

in real terms as nominal terms against the Japanese yen. These differences are

however hardly statistically significant. Neither the Japanese nor the US real

interest rate individually seems to have dominant influence on the Pacific-Asian

interest rates and correlation varies according to country and period.

iii

R e a l a n d F i n a n c i a l l i n k a g e i n P a c i f i c - A s i a

Influential power of the Japanese yen and interest rate in

arbitrage transactions

January 1996

Toshie Ikenaga


v

Real and Financial Linkage in Pacific-Asia

Table of Contents

I. INTRODUCTION

Capital mobility and real interest parity

II. INFLUENTIAL POWER OF THE JAPANESE YEN IN EXCHANGE RATE MOVEMENT IN

PACIFIC-ASIA

1. Exchange rate system in each country

Weights on the US dollar, the Japanese yen and the Deutsche

mark in Pacific-Asia

2. Nominal exchange rate fluctuation

3. Real exchange rate movement

Persistence of nominal and real exchange rate changes

III. CORRELATION IN INTEREST RATES

IV. CONCLUSION

REFERENCE

TABLES

1. Share in intra-regional trade 2. Exchange rate Regime in Pacific-Asian countries 3-1. Implicit basket weights (based on SFR) 3-2. Implicit basket weights (based on pound) 4. Average and standard deviation of changes in nominal

exchange rates 5. Average and standard deviation of changes in real

exchange rates 6. Autoregression coefficients for changes in nominal and real

exchange rates 7. Real money market rates

－1－

I. Introduction

Pacific-Asian economies have succeeded in economic growth by pursuing

outward- or export-oriented strategies. They have benefitted from free trade and

the United States has offered them a huge market. Their remarkable economic

growth in the 1980s made them one of the most promising economic centers. Intra-

regional trade and direct foreign investment in Asia have been increasing rapidly

and are forecasted to continue to do so.

Table 1 shows growing share of intra-regional trade for 12 economies. The

share of intra-regional exports and imports within the Pacific-Asian region

increased from 37% (excluding China) in 1980 to 45% in 1992, from 37% (excluding

China) in 1980 to 52% in 1992 respectively. They reached somewhat lower level

than that within EU (50 - 60%). It is important to stress, however, that the EU has

had a preferential trading arrangement since 1958, whereas there is no regional

preferential trading agreement in Asia. In fact, the share of intra-regional trade

in the total imports of Hong Kong (75%), Malaysia (63%), China (61%), Thailand

(58%), Singapore (56%) and Indonesia (53%) in 1992 exceeded the half of the total,

which is comparable to that of the EU average. In addition to the already-

considerable increase in intra-regional transactions in Pacific-Asia, economic

integration in Europe and the Americas may encourage them to form a similar

internal market which would ensure the free flow of goods and services.

The "deepening" of economic integration has been driven by the growth of

foreign direct investment, which has contributed to above mentioned growth in

intra-regional trade as well as contributed to the deepening interdependence in

capital transactions. Another driving force for the deepening of economic

－2－

interdependence has been the growth of financial flows within the region due to

more liberalized investment regimes and the evolution of capital market. Thus the

formation of an integrated market is likely to promote and be promoted by further

integration in financial area.

The deepening of financial linkage would enhance the possibility that real

interest parity - i.e. domestic and foreign real interest rates tend to be equalized

after being adjusted by expected changes in real exchange rates - might hold

through arbitrage transactions with greater capital mobility.1 This paper tries

to examine influential power of the Japanese yen and interest rate in financial

linkage in Pacific-Asia in comparison with the US dollar or Deutsche mark by

asking a question, "Are the Japanese yen and interest rate the target of arbitrage

transactions by Pacific-Asian economies?". The sample periods are divided into

four in accordance with exchange rate movement to see how influential power of

currencies changed (see Appendix): (1)1980.01 - 1984.12 (strong US dollar/weak

Japanese yen), (2)1985.01 - 1988.12 (strong yen/weak dollar), (3)1989.01 - 1990.04

(strong dollar/weak yen), (4)1990.05 - (strong yen/weak dollar). Pacific-Asia here

includes the economies of Japan, Korea, Singapore, Hong Kong, Malaysia, Thailand,

Indonesia, the Philippines, China, Australia and New Zealand.2

1 Real interest parity implies ex-post real rates of return should be equalized globally after being adjusted by expected changes in real exchange rates in an integrated financial and capital market. Therefore, real interest parity doesn’t hold, when capital mobility is imperfect. There are other possibilities that real interest parity doesn’t hold, e.g. when there is a risk premium or some erratic or irrational changes in people’s expectation. 2 Taiwan is excluded because its economic data are excluded from the United Nations and other statistical sources, making data compatibility and availability difficult. While some authors include the United States and Canada in the Pacific- As ian reg ion , th i s paper f o cuses on "As ia " ( i n c lu d in g g eo g r a p h i c a l ly - pr ox i m a t e

－3－

The outline of the paper is as follows. Section II focuses on the influence

of the Japanese yen on exchange rate movement in Pacific-Asian economies. First,

after surveying the exchange rate system implicit weights assigned to major

currencies are estimated. Second, nominal exchange rate development is

presented. Third, movement in real exchange rates in relation to real (trade)

linkage is examined. Section III empirically tests the influence of Japanese

interest rate on Pacific-Asian interest rate movement in comparison with that of

the US rate.

In concluding, the empirical analysis suggests that the Japanese yen is not

the target currency in the Pacific-Asian region nor are Pacific-Asian interest

rates correlated with the Japanese interest rate more than with the US rate.

Although Japan increased its share of the region’s trade in the latter half of the

1980s, the Japanese yen seems far behind the US dollar in being treated as the

key currency. Neither the Japanese nor the US interest rate individually seems

to have dominant influence on the Pacific-Asian interest rates and correlation

varies according to country and period.

Capital mobility and real interest parity

The Pacific-Asian region as a whole has been generally deregulating

domestic financial markets and removing or relaxing restrictions on international

capital movements. Some research has shown that a greater degree of capital

mobility with financial liberalization dampened deviations from interest rate

Australia and New Zealand).

－4－

parity.3 In addition, mobility of physical capital in the form of foreign direct

investment is remarkable: Since the appreciation of the yen in 1985, Japanese

foreign direct investment (FDI) into Pacific-Asian countries has grown rapidly.

Asian NIEs have emerged in the 1980s as increasingly-important foreign investors

themselves, particularly in the Pacific-Asian region. Accordingly, the shares of

inflows of FDI from some Asian countries (from Japan in parentheses) are quite

high: Malaysia 72.9%(31.1%), Thailand 69.2%(44.1%), Indonesia 41.7%(16.3%) and the

Philippines 59.8%(19.7%).4 It is interesting to note that Japanese transnational

corporations have adopted regional core network strategies. This approach

follows a pattern of strong upstream (supply) linkages from Japan to Asian

affiliates, and strategies which shift production of goods with different

technological requirements to Asian countries at different stages of technological

sophistication. Moreover, physical capital mobility and financial capital mobility

promote each other: Growing foreign direct investment should require more

international financing, and growing financial capital mobility may encourage

further FDI vice versa.

II. Influential power of the Japanese yen in exchange rate movement in Pacific-

Asia

This section empirically tests whether the Japanese yen plays a role as the

3 See Faruqee(1991) . He a lso suggested that as reg ional and wor ld interes t rates are l inked to a greater degree as a resu l t o f increased cap i ta l mobi l i ty, the ab i l i ty o f independent monetary po l i cy to a f fec t rea l economic ac t iv i ty through domest i c in terest ra tes has been reduced . 4 Goto and Hamada (1994) .

－5－

target currency in the Pacific-Asian region. First, exchange rate system in each

country and implicit weights assigned on the Japanese yen in each currency are

estimated. Second, nominal exchange rate fluctuation is examined. Third, real

exchange rate fluctuation and relation with trade linkage are presented. In

addition, persistence of nominal and real exchange fluctuation is estimated.

1. Exchange rate system in each country

Asian currencies are basically determined on the basis of demand and

supply conditions in the exchange market, although most countries try to stabilize

their currencies vis-a-vis US dollar or a basket of major trading partners’

currencies. In most countries, the US dollar is the sole intervention currency

(Table 2).5

Korea : Since the introduction of a market average rate (MAR) system6 on March

2, 1990, the Korean won-US dollar exchange rate in the interbank market is set

between +/-0.6 percent and, since November 1994, 1.50 percent against the MAR

during each business day. The exchange rates of the won against currencies

other than the US dollar are determined in relation to the exchange rate of the US

dollar against these currencies in the international market.

Singapore : The Monetary Authority of Singapore monitors the external value of

5 The fo l lowing d i scuss ion i s based on in format ion prov ided by the IMF, Exchange Arrangements & Exchange Restr i c t i ons , Annual Report 1995 . However, most recent exper ience between March and May 1995 showed that some countr ies sh i f ted the i r reserve currency into the Japanese yen-denominated asse ts f rom the do l lar ones . 6 Under the MAR system, Korean won-US do l lar rate has been determined on the bas i s o f the weighted average o f in terbank rates f or Korean won-US do l lar spot t ransact ions o f the prev ious day. This system was estab l i shed in response to the US po l i t i ca l pressure and supposed to a l low a b igger ro le for the market in determining the won/do l lar rate .

－6－

the Singapore dollar against a (undisclosed) trade-weighted basket of currencies

with the objective of maintaining a low and stable domestic inflation rate. Rates

for the other currencies are available throughout the working day and are based

on their cross rates against the US dollar in international markets.

Hong Kong : Since October 17, 1983, the Hong Kong dollar has been linked to the

US dollar. For some transactions, the exchange rate of Hong Kong dollar is set in

the exchange market at freely negotiated rates. However, the possibility of

interest rate arbitrage and currency arbitrage, together with the capability of the

Hong Kong Monetary Authority to intervene in the market, tends to keep the

market rate in line with the linked rate.

Malaysia : The Central Bank of Malaysia intervenes only to avoid excessive

fluctuations in the value of the ringgit in relation to a basket of currencies

weighted in terms of Malaysia’s major trading partners and the currencies of

settlement. Rates for all other currencies are determined on the basis of the

ringgit-US dollar rate and the US dollar rates for those currencies in market

abroad.

Thailand : The external value of the baht is determined on the basis of the

relationship of the baht to a (undisclosed) weighted basket of currencies of

Thailand’s major trading partners and other considerations.

Indonesia : Since November 1978, the exchange value of the rupiah is determined

by Bank Indonesia under a system of managed float against a basket of weighted

currencies. The US dollar is the intervention currency. Exchange rates for

certain other currencies are determined on the basis of the rates in the bourse for

the US dollar and rates for the currencies concerned in international markets.

－7－

The Philippines : The authorities intervene when necessary to maintain orderly

conditions in the exchange market and in light of their other policy objectives in

the medium term.

China : Before 1994, both the official rate and the market rate are adopted and the

official exchange rate was adjusted according to movements in the value of a

basket of internationally traded currencies. In January 1994, the official rate was

adjusted to the market one. Since then the central bank quotes the midpoint rate

against the US dollar based on the previous day’s prevailing rate in the interbank

foreign exchange rate.

Australia and New Zealand : The Reserve Bank of Australia and the Reserve Bank

of New Zealand allow for an independent float, but retain discretionary power to

intervene in the foreign exchange market.

Weights on the US dollar, the Japanese yen and the Deutsche mark in Pacific-Asian

currencies

As mentioned above, most of Pacific-Asian currencies are linked to either

the US dollar or a trade-weighted basket. Some countries experiencing the

increase in the share of their trade with Japan, the weight assigned to the yen

might have increased commensurately. Since the weights assigned to various

currencies are not disclosed, the implicit weights on the US dollar, the Japanese

yen and DM are estimated by using monthly data.

I estimated the following currency basket function:

Δln ERi = constant + αΔln(US$/SFR) + βΔln(yen/SFR) +γΔln(DM/SFR) and

－8－

Δln ERi = constant + αΔln(US$/pound) + βΔln(yen/pound) + γΔln(DM/pound) 7

All currencies are expressed as rates in units of national currency per Swiss franc

or British pound (e.g. ERi = the currency of country i per Swiss franc or British

pound). Each coefficient is interpreted as weights of the US dollar, the Japanese

yen and the Deutsche mark respectively. To see how weights have changed in

response to exchange-rate movements, sample periods were divided into four,

(1)1980.1-1984.12 (the period of strong US dollar), (2)1985.01-1988.12 (the period

of a rapid depreciation of the dollar/appreciation of the yen) and (3)1989.01-90.04

(the period of strong dollar/weak yen), (4)1990.05 - (the period of strong

yen/weak dollar).

Table 3-1 and 3-2 suggest that estimated weights on the US dollar are

relatively significant and despite overall poor regression results these estimates

seem to suggest that the weight on the US dollar remains dominant. In the face

of the appreciation of the Japanese yen between 1985 and 1988 Singapore,

Malaysia, China, Australia and New Zealand seemed to reduce the weight on the yen

and the coefficients became insignificant from significant. However, in Korea,

Singapore and Thailand, the weight on the yen increased thereafter and the

coefficients for the yen became significant again in the 1990s. In Singapore and

Thailand, in addition to the Japanese yen, estimated weights on the Deutsche mark

became significant in the 1990s. In most countries (except Malaysia and China)

7 Here , a currency basket i s formulated as fo l lows . I t i s assumed that a currency in Pac i f i c -As ian economies would be descr ibed as a geometr ic weighted average o f currency 1 , currency 2 and currency 3 : E i = AE 1 a *E 2 b *E 3 c . Taking logar i thm, lnE i = lnA + a lnE 1 + b lnE 2 +c lnE 3 Af ter deduc ing the der ivat ive o f the log function, ΔEi/Ei= constant + a ΔE1/E1 + b ΔE2/E2+ c ΔE3/E3 Rate of change (Δ E i /E i ) i s expressed in the form o f f i rs t d i f f erenc ing o f l ogar i thm.

－9－

these three currencies account more for weight-setting (with higher R2) in the

1990s than in the first half of 1980s. There seems no major difference between the

result using Swiss franc and British pound. Only slight differences are : the

latter estimation shows significant weights on the Deutsche mark in Singapore and

China during the 1980.01-1984.12 period, in Malaysia during the 1980.01-1988.12

period and significant weights on the Japanese yen in Thailand during the

1985.01-1988.12 period, while the former does not.

In sum, in spite of an increase in trade of some countries with Japan, there

does not seem to be an evidence suggesting the hypothesis that the Japanese yen

has gained weight in exchange rate targeting regionwide. In the face of the

appreciation of the Japanese yen after the Plaza Agreement, some countries

reduced its weight in their baskets, possibly because they wanted to avoid letting

their currencies appreciate against other currencies rapidly. In the 1990s,

however, some countries such as Korea, Singapore and Thailand seemed to reduce

weights on the US dollar and increase weights on the Japanese yen or the

Deutsche mark in comparison with the latter of the 1980s.

2. Nominal exchange rate fluctuation

Might Pacific-Asian economies try to stabilize the foreign exchange value

of their currencies with the US dollar or the Japanese yen? As shown above,

officially only one of them are pegged uniquely to the US dollar and none of them

is pegged to the Japanese yen. Dominant implicit weights are estimated to be

assigned to the US dollar. Here, we determine if they actually tend to link their

currencies to the major foreign currency - either the US dollar or the Japanese

yen. Table 4 presents the average and standard deviation of the monthly changes

－10－

in nominal exchange rates of Pacific-Asian currencies against the US dollar, the

Japanese yen and the Deutsche mark in the form of first order logarithmic

difference. The average implies the degree of stability of the value of the

currency over the period and the standard deviation shows the volatility.

In the very short-run, when prices are fixed, nominal exchange rates are

adjusted to cancel interest rate differential between the domestic and foreign ones

through the short-term capital mobility. For every country, the value of the

currency vis-a-vis appreciating currencies seems less stable : While in the first

half of the 1980s the value against the US dollar appeared a little less stable (with

a bigger change) than against the Japanese yen and the Deutsche mark, the value

against the Japanese yen become the least stable among the three currencies since

the latter half of the 1980s (except the short period of weakening yen).8

Volatility of exchange rates against the US dollar seemed to decrease from the

1980s to the 1990s except in Japan and China, whose value of standard deviation

in the 1990s is remarkably higher than other countries.

In the 1990s, exchange rate against the Japanese yen changed and

fluctuated more (with bigger average and standard deviation) than against the US

dollar as well as the Deutsche mark. Only in Singapore the value against the

Japanese yen changed less than that against the US dollar, although the value of

Singapore dollar was even more stable against the Deutsche mark than against the

Japanese yen.

In sum, exchange rates in Pacific-Asian currencies against the Japanese yen

seem less stable and more volatile than against the US dollar and even against the

8 However, these d i f ferences are hard ly s tat i s t i ca l ly s ign i f i cant .

－11－

Deutsche mark for the most period since the latter half of the 1980s. This is in

part a reflection of the fact that the US dollar continues to the primary target

currency of the region. This role seems to remain unchanged in most countries,

suggesting that the perception of a growing importance of the yen as a target

currency may be exaggerated.

3. Real exchange rate movements

In the medium and longer run, when prices change, real exchange rates

represent competitiveness in trade, because they reflect a difference in prices

between domestic and abroad. Therefore, the monetary authorities may have a

good reason to monitor the real value against currencies of major trade partners.

The real exchange rate (RER) of country i per US dollar is defined as:

RERi/us$ = (NERi/us$*Pus)/Pi

RERi/us$: real exchange rate of country i against the US dollar ; expressed in terms of domestic currency per US dollar

NERi/us$: nominal exchange rate of country i against the US dollar; expressed in terms of domestic currency per US dollar

Pus : CPI in the US Pi : CPI in country i

As a whole, like nominal exchange rates, real exchange rates seem less stable

and more volatile against the Japanese yen than against the US dollar and the

Deutsche mark for the most period since the latter half of the 1980s (Table 5). 9

In comparison with the case in nominal rates, real rates are more stable and less

volatile in most cases.

In the 1990s, in countries such as Hong Kong, Malaysia, Thailand, where

either their currencies are pegged to the US dollar or weights assigned to the US

9 L ike the case o f the nominal exchange rate , the fo l l owing d i f ferences are hardly s ta t i s t i ca l ly s igni f i cant .

－12－

dollar in the currency basket seem dominant and relatively high inflation is

observed, their currencies appreciate against the US dollar much more in real

terms than nominal terms. At the same time, every currency appreciated in real

terms against the US dollar, although some of them depreciated in nominal terms

(Korea, Indonesia and the Philippines).

Against the Japanese yen, every currency depreciated in real terms in the

1990s, but none of them depreciated so much in real terms as nominal terms. In

particular, the value of the Singapore and Hong Kong dollar and the Philippine

peso against the Japanese yen changed less than against the US dollar in real

terms, more than against the Deutsche mark, though. In terms of volatility

(standard deviation), Pacific-Asian currencies are more volatile against the

Japanese yen also in real terms than the US dollar.

Greater real stability of the Japanese yen against Pacific-Asian currencies

than nominal one seems compatible with increase in share of imports in some

countries from Japan in the 1990s (see Table 1), when the Japanese yen nominally

appreciated much more substantially. Most of Pacific-Asian economies experienced

real appreciation against the US dollar in the 1990s, which might partly explain a

declining trend in the share of exports to the US.

There may be reverse causality. As the share of most Pacific-Asian

economies’ imports from Japan increased, nominal yen’s appreciation would lead

to a rise in import prices, then to domestic prices. Therefore their price rise

would be higher than Japanese one, which would partially offset nominal

depreciation of their currencies against the Japanese yen.

Persistence of nominal and real exchange rate changes

－13－

Weights of a target currency should affect persistence in exchange rate

changes: When the currency in some country is perfectly linked to the US dollar,

changes in exchange rate against the US dollar shouldn’t be persistent. On the

contrary, when only a small weight is assigned to the US dollar, the exchange rate

against the US dollar is partially adjusted, so changes should be more persistent.

Here persistency of changes in nominal and real exchange rate is expressed

as the following fourth-order autoregression coefficients.

Δln ERit = α 1Δln ERit－1 + α 2Δln ERit－2 + α 3Δln ER it－3 + α 4Δln ER it－4

To see how the persistency changed over periods as relative stability and

instability, the sample period is also divided into above mentioned four. A positive

autoregression coefficient means a persistency of a specific movement, and the

size of the coefficient shows the magnitude of such persistency.

Table 6 shows that almost all of the average first-order autoregression

coefficients are positive, which would imply changes in exchange rates are more

or less persistent in these countries and the link to any currency should be

considered partial. Changes in nominal terms are generally more strongly

persistent than real terms. In the period of strong US dollar changes are less

persistent than those in the period of weak dollar, i.e. exchange rate adjustment

was estimated to be done very smoothly. Lack of persistency in exchange rate

movement against the US dollar in Hong Kong supports the fact that Hong Kong

dollar is pegged to the US dollar.

In the 1990s, the sums of the coefficients for the US dollar in Korea,

Singapore, Malaysia, Thailand and Indonesia are bigger than those for the

Japanese yen, which would imply the linkage of their currencies to the Japanese

－14－

yen should be stronger than to the US dollar. This implication would be partly

compatible with the estimation of weights assigned to the Japanese yen (Table 3)

that in Korea, Singapore and Thailand the weight on the yen increased in the

1990s from the 1980s, although the weight on the dollar stays higher on the yen.

In sum, changes in the nominal and real exchange rates between Japan and

Pacific-Asian countries are persistent. While they were clearly more persistent

than those between the United States and most Pacific-Asian countries between

1985.01 and 1988.12, they became less persistent since 1990.

This section leads to the conclusion that Pacific-Asian exchange rates

against the US dollar seem generally more stable and less volatile in both nominal

and real terms than against the Japanese yen in the 1990s. The US dollar still

seems a targeted currency, although real value against the Japanese yen become

more stable in the 1990s than against the US dollar in some countries, and a

growing literature suggests an increase in international use of the yen.10

III. Correlation in interest rates

This section focuses on targeted "foreign" real interest rates in arbitrage

transactions. In analyzing the comovement of interest rates in Pacific Asian

economies, where development of the financial market is diverse, the availability

and compatibility of the interest rate data cause serious problems for analysis.

For this reason, the money market rate, which is available in most countries, seems

1 0 See Tav las and Ozeki (1992) , I to and Krueger (1994) and Frankel (1992) .

－15－

to be the best interest rate to use as independent variable.11 Real interest

rates are obtained by deflating nominal ones with logarithmic difference in

monthly CPI.12

A possible test is to undertake regression analysis to see whether Japanese

real interest rate has some influential power in determining interest rate

movement.13 For comparative purposes, US real interest rates are also used as

an explanatory variable.

First, the real interest rate in country i is regressed on its own past.

Changes in the real interest rate reflects fundamental changes in the real

economy, which usually takes time.

RMMRit = C + α 1 RMMRi,t－1 +α 2 RMMR i,t－2 +α 3 RMMR i,t－3+α 4 RMMR i,t－4

Second, either the current and past real interest rate in the US or Japan

is included, which are supposed to reflect major external events, respectively.


+ β 0 RMMRus,t + β 1 RMMRus,t－1 +β 2 RMMR us,t－2 +β 3 RMMR us,t－3 +β 4 RMMR us,t－4


+ γ 0 RMMRjapan,t + γ 1 RMMRjapan,t－1 +γ 2 RMMRjapan,t－2 +γ 3 RMMRjapan,t－3

11 Interest rate data were obtained from IMF, International Financial Statistics. Money Market Rates ( l ine 60B) were avai lab le f or Japan ( ca l l money rate ) , Korea ( ca l l money rate ) , S ingapore (3 month interbank rate ) , Malays ia (overn ight interbank l ending rate ) , Indones ia ( interbank rate ) , Thai land ( interbank depos i t rate ) . Austra l ia and New Zealand are exc luded because o f lack o f monthly pr i ce data . 1 2 RMMR=ln{1+MMR/(100*12) } - Δ ln CPI 1 3 In th is regress ion , among fac tors which would a f fe c t arb i trage transact i ons , those o ther than the rea l in terest rate such as expected changes in rea l in tere s t rates are assumed to be re f lec ted in error terms.

－16－

+ γ 4 RMMRjapan,t－4

Finally, both the Japanese and the US current and past real interest rate

are added and I checked whether they add explanatory power via a F test.


+ β 0 RMMRus,t + β 1 RMMRus,t－1 +β 2 RMMR us,t－2 +β 3 RMMR us,t－3 +β 4 RMMR us,t－4

+ γ 0 RMMRjapan,t +γ 1 RMMRjapan,t－1 +γ 2 RMMRjapan,t－2 +γ 3 RMMRjapan,t－3

+γ 4 RMMRjapan,t－4

The results of these regressions are found in Table 7. Reflecting the sticky

process of adjustment in the real economy, the real interest rate is explained by

its own past to some extent (in the first half of the 1980s and in the 1990s in Korea,

in the most 1980s in Malaysia, between 1985 and 1988 in Thailand, and in the 1990s

in Indonesia). Neither the Japanese nor the US interest rate individually seems

to have dominant influence on these Pacific-Asian interest rates and correlation

varies from country to country and from period to period: Singapore’s interest

rates show relatively strong correlation with the US and Japanese one during the

most sample period, although correlation with the lagged US interest rates seems

stronger than that with the Japanese one and explanatory power of its own past

has been weak in the whole sample period. In Malaysia and Thailand, while the

domestic interest rates showed significant correlation with the current (in

Thailand) or lagged (in Malaysia) US and Japanese one in the 1980s (', their

correlation seems to become weak and influential magnitude of all interest rates

have become weaker in the 1990s than in the 1980s. In Korea the Japanese interest

rate does not have additional power by itself in the 1990s. Poor results between

1989.01 and 1990.04 is possibly attributable to very limited degree of freedom.

－17－

In sum, these results also suggest that interest rates of Pacific-Asian

countries don’t seem to be influenced by Japanese interest rate very significantly.

Nor has the US interest rate substantial influential power by itself. However, in

the process of financial integration, domestic real interest rates in more advanced

Pacific-Asian economies (Singapore and Korea) show significant correlation with

US and Japanese rates in the 1990s.

IV. Conclusion

In sum, in answering the question, "Are the Japanese yen and interest rate

the target of arbitrage transactions by Pacific-Asian economies?", I must respond

in the negative.

The Pacific-Asian countries have been successful in promoting economic

growth through exploitation of the international marketplace by exporting. A

necessary result of this approach is greater degree of dependence on the vagaries

of the world market. The recent trend toward economic integration in Europe and

in the Americas caused the Pacific-Asian countries to be concerned about the

future of the international marketplace, encouraging them to explore deeper

internal economic transactions. In the process of forming closer regional economic

links, financial linkage takes on a growing importance.

Capital is relatively mobile, that is, intra-regional foreign direct investment

and other financial flows have been increasing remarkably, and their international

trade as well as financial transactions have been already quite concentrated in the

region.

－18－

Under growing financial integration, in light of the current status quo, it

is implausible that the Japanese yen is becoming the target currency and that the

Japanese interest rate is taken into account in the arbitrage transactions. Most

Pacific-Asian currencies are linked to either the US dollar or a trade-weighted

basket. All countries assign the greatest weight to the US dollar. In the 1990s,

however, some countries such as Korea, Singapore and Thailand seemed to reduce

weights on the US dollar and increase weights on the Japanese yen or the

Deutsche mark in comparison with the latter of the 1980s.

For every country, the nominal and real exchange rates against the

Japanese yen seem less stable and more volatile than against the US dollar and

even against the Deutsche mark for the most period since the latter half of the

1980s. It would suggest the US dollar continues to be the primary target

currency of the region and Pacific-Asian countries try to keep the value of their

currency stable relative to the US dollar, rather than the Japanese yen. In the

1990s, while every currency appreciated in real terms against the US dollar, none

of them depreciated so much in real terms as nominal terms against the Japanese

yen. Greater real stability of the Japanese yen against Pacific-Asian currencies

than nominal one seems compatible with increase in share of imports in some

countries from Japan in the 1990s, when the Japanese yen nominally appreciated

much more substantially. Or reversely, with increasing share of most Pacific-

Asian economies’ imports from Japan, nominal yen’s appreciation would lead to a

rise in import prices, then to domestic prices, which would partially offset nominal

depreciation of their currencies against the Japanese yen. Changes in the nominal

and real exchange rates between Japan and Pacific-Asian countries are persistent.

－19－

While they were clearly more persistent than those between the United States and

Pacific-Asian countries between 1985.01 and 1988.12, they became less persistent

since 1990.

In terms of interest rates, US and Japanese real interest rates sometimes

seem to explain better than the country’s own past, although neither Japanese nor

the US real interest rate by itself has dominant influential power. However, in the

process of financial integration, domestic real interest rates in more advanced

Pacific-Asian economies (Singapore and Korea) show significant correlation with

US and Japanese ones in the 1990s.

Despite all these results, there is no question as to the possibility that

deepening economic interchange will require further growth of financial flows.

In fact, financial integration has been supported steadily by the emergence of

Hong Kong and Singapore as international financial centers with the increasing

number of investors and transactions in the Pacific-Asian region. Under those

circumstances, financial capital from all over the world moves toward as profitable

opportunities as possible in a moment. The above mentioned question, "Are the

Japanese yen and interest rate the target of arbitrage transactions by Pacific-

Asian economies?" will require further discussion on inter alia attractiveness of

the Japanese yen and Japanese financial market including openness and deepness

of the market as well as transparency of the Japanese financial system.

－20－

Reference

Faruqee, Hamid (1991), "Dynamic Capital Mobility in Pacific Basin Developing

Countries: Estimation and Policy Implications", IMF Working Paper 91/115

Frankel, Jeffrey A (1992), "Is Japan creating a yen block in East Asia and the

Pacific?", NBER Working Paper 4050

Frankel, Jeffrey A. and Shang-Jin Wei (1994), "Yen Bloc or Dollar Bloc?

Exchange Rate Policies of the East Asian Economies", Macroeconomic

Linkage; Savings, exchange rates, and Capital Flows, edited by Ito,

Takatoshi and Anne Krueger. The University of Chicago Press

Goto, Junichi and Koichi Hamada (1994), "Economic Preconditions for Asian

Regional Integration", Macroeconomic Linkage; Savings, exchange rates, and

Capital Flows, edited by Ito, Takatoshi and Anne Krueger. The University

of Chicago Press

International Monetary Fund, Exchange Arrangements & Exchange Restrictions,

Annual Report 1992

Taguchi, Hiroo (1994), "On the Internationalization of the Japanese Yen",

Macroeconomic Linkage; Savings, exchange rates, and Capital Flows, edited

by Ito, Takatoshi and Anne Krueger. The University of Chicago Press

Tavlas, George S and Yuzuru Ozeki (1992), "The internationalization of

currencies: an appraisal of Japanese Yen", IMF Occasional Paper 90

United Nations, World Investment Report 1991; The Triad in Foreign Direct

Investment

－21－

Table 1 Share in intra-regional trade (%)

Imports Exports 1980 1985 1990 1992 1980 1985 1990 1992 Japan Intra 28.0 32.3 32.7 36.3 28.9 27.7 32.4 35.4 US 17.5 20.3 22.8 22.8 24.4 37.6 31.7 28.4 Korea Intra 38.1 38.8 40.8 43.5 31.2 27.2 36.6 42.0 US 21.9 20.8 24.3 22.4 26.4 35.6 29.9 23.7 Japan 26.2 24.2 26.6 23.8 17.3 15.0 19.4 15.1 Taiwan Intra 39.4 41.5 45.0 48.6 30.9 29.0 39.2 43.3 US 23.7 23.6 23.1 21.9 34.3 48.3 32.5 29.0 Japan 27.1 27.6 29.3 30.4 11.0 11.3 12.4 10.9 Hong Kong Intra 65.0 70.6 73.5 75.4 29.1 43.1 45.9 47.4 US 12.0 9.1 8.5 7.7 26.1 30.8 24.1 23.1 Japan 23.3 23.0 15.7 16.9 4.6 4.2 5.7 5.2 Singapore Intra 44.8 52.8 53.4 55.8 47.3 45.3 47.7 48.2 US 14.1 15.2 16.0 16.5 12.7 21.2 21.3 21.1 Japan 17.8 17.1 20.2 21.1 8.1 9.4 8.7 7.6 Malaysia Intra 53.6 58.8 59.4 63.1 54.4 62.1 58.5 56.9 US 15.0 15.2 16.8 15.9 16.3 13.0 16.9 18.7 Japan 23.0 23.0 24.1 26.0 22.8 23.8 15.8 13.3 Thailand Intra 41.7 51.9 57.0 58.2 41.5 40.8 39.2 41.2 US 16.6 11.4 10.8 11.7 12.7 19.7 22.7 22.5 Japan 20.7 26.5 30.4 29.3 15.1 13.4 17.2 17.5 Indonesia Intra 57.4 48.1 53.5 52.5 67.5 65.9 68.5 63.4 US 13.0 16.8 11.5 14.0 19.6 21.7 13.1 13.0 Japan 31.5 25.8 24.3 22.0 49.3 46.2 42.5 31.7 Phillipines Intra 39.1 49.0 47.1 50.7 44.2 41.7 38.4 34.9 US 23.6 25.3 19.5 18.2 27.5 35.9 37.9 39.1 Japan 19.9 14.4 18.4 21.2 26.6 18.9 19.8 17.8 China Intra n.a. 52.8 54.5 60.6 n.a. 59.4 66.7 67.4 US n.a. 11.9 12.3 11.0 n.a. 8.6 8.3 10.1 Japan n.a. 35.8 14.2 17.0 n.a. 22.2 14.5 13.7 Australia Intra 31.6 36.9 39.6 41.6 44.6 45.2 56.2 60.3 US 21.8 21.7 24.3 23.1 10.0 8.2 11.9 9.2 Japan 17.0 23.1 19.0 17.6 24.7 25.5 27.0 26.6 New Zealand Intra 43.5 47.3 46.3 48.9 37.2 40.1 49.4 52.5 US 13.8 16.0 17.9 19.6 12.8 14.4 13.3 12.6 Japan 14.4 20.6 15.6 14.7 12.5 14.5 16.7 15.7 Total Intra 37.0 43.6 46.6 51.5 36.6 36.9 42.7 45.3 US 17.7 17.8 18.6 17.5 22.3 30.8 25.5 23.2 Japan 11.7 15.8 14.5 15.7 10.7 9.7 9.6 8.4

(Source) Institute of Developing Economies "AIDXT", and IMF, "Direction of Trade".

－22－

Table 2 Exchange rate Regime in Pacific-Asian countries

A peg to managed floating independ-ently floating

the US dollar

a composite of currency

Korea MAR(closely linked to the US $)

Singapore monitor (trade- weighted basket

Hong Kong *

Malaysia monitor (trade- weighted basket

Thailand trade-weighted basket

Indonesia a basket of weighted currencies

Philippines *

China (closely linked to the US $)

Australia *

New Zealand *

Source: IMF, Exchange Arrangements and Exchange Restrictions, 1995

－23

－

Table 3-1 Implicit basket weights (based on SFR)

80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08 Korea constant 0.841* -0.343* -0.154 0.302* Indonesia constant 0.784 1.145 0.308* 0.352* US dollar 0.942* 0.988* 0.985* 0.861* US dollar 0.921* 0.943* 0.939* 0.972* yen -0.010 -0.082 0.224* 0.139* yen 0.053 0.396 0.033 0.019 DM -0.040 -0.8888 -0.017 0.013 DM 0.443 -0.880 0.028 0.010 adj.R2 0.717 0.936 0.978 0.941 adj.R2 0.355 0.384 0.998 0.995 Singapore constant -0.134 0.094 -0.310 -0.301 Phillipines constant 1.919* -0.076 0.241 0.051 US dollar 0.595* 0.737* 0.794* 0.676* US dollar 1.242* 1.173* 1.009* 1.153* yen 0.243* 0.075 0.072 0.126* yen 0.014 -0.105 0.087 -0.157 DM -0.020 0.063 0.069 0.231* DM -0.408 0.070 -0.091 0.147 adj.R2 0.930 0.895 0.917 0.959 adj.R2 0.440 0.890 0.986 0.778 Hong Kong constant 0.688* 0.008 0.033 -0.011 China constant 0.689* 0.384 -0.341 1.040 US dollar 0.714* 0.988* 1.015* 1.002* US dollar 0.436* 1.142* 1.295* 0.622* yen 0.178 0.002 -0.018 0.001 yen 0.195* -0.227 0.893 0.243 DM -0.087 0.016 0.044 0.001 DM 0.212 0.338 -1.721 0.882 adj.R2 0.600 0.998 0.999 0.998 adj.R2 0.645 0.798 0.635 0.245 Malaysia constant -0.014 0.434* -0.016 -0.148 Australia constant 0.378 0.275 0.839 0.056 US dollar 0.619* 0.798* 0.912* 0.861* US dollar 0.554* 0.817* 0.812* 1.073* yen 0.171* 0.083 0.075 0.021 yen 0.336* 0.267 -0.014 0.004 DM 0.071 0.031 0.088 0.254 DM -0.168 0.555 0.330 -0.325 adj.R2 0.877 0.879 0.950 0.872 adj.R2 0.628 0.473 0.584 0.775 Thailand constant 0.563 0.071 0.064* 0.039* New Zealand constant 1.007* -0.210 0.594 -0.075 US dollar 1.025* 0.808* 0.811* 0.821* US dollar 0.467* 0.725* 0.760* 0.814* yen 0.079 0.042 0.109* 0.105* yen 0.327* 0.277 0.146 0.087 DM -0.078 -0.122 0.097* 0.067* DM -0.030 -0.716 0.773 -0.201 adj.R2 0.708 0.972 0.999 0.999 adj.R2 0.404 0.283 0.768 0.756

△ln (currency/SFR) =constant+α△ln (US$/SFR) +β△ln (¥/SFR) +γ△ln (DM/SFR)

* significant at 5% level

－24

－

Table 3-2 Implicit basket weights (based on pound)

80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08 Korea constant 1.067* -0.376* -0.248 0.319* Indonesia constant 1.258* 1.267* 0.311* 0.351* US dollar 1.091* 1.000* 0.961* 0.884* US dollar 1.231* 0.776* 0.939* 0.971* yen 0.078 0.058 0.344* 0.126* yen 0.114 0.443 0.044* 0.020 DM 0.190 -0.083 -0.122 -0.083 DM 0.332 -0.612 0.042* 0.002 adj.R2 0.728 0.921 0.975 0.944 adj.R2 0.381 0.279 0.998 0.994 Singapore constant -0.153 0.123 -0.284 -0.306* Phillipines constant 1.760* -0.114 0.241 0.063 US dollar 0.583* 0.701* 0.802* 0.665* US dollar 1.138* 1.186* 1.009* 1.178* yen 0.272* 0.088 0.007 0.132* yen -0.004 -0.134 0.104 -0.172 DM 0.137* 0.132 0.077 0.150* DM -0.360 -0.087 -0.079 0.034 adj.R2 0.891 0.887 0.901 0.958 adj.R2 0.264 0.862 0.984 0.745 Hong Kong constant 0.645* 0.007 0.006 -0.010 China constant 0.597* 0.302 0.012 1.103 US dollar 0.687* 0.988* 1.001* 1.003* US dollar 0.377* 1.117* 1.367* 0.754* yen 0.203 -0.000 -0.020 0.000 yen 0.198* -0.307* 0.982* 0.165 DM 0.068 0.007 -0.010 0.000 DM 0.303* -0.086 -0.944 0.301 adj.R2 0.472 0.997 0.999 0.998 adj.R2 0.585 0.737 0.607 0.229 Malaysia constant -0.035 0.493* -0.068 -0.146 Australia constant 0.248 0.094 0.760 -0.006 US dollar 0.606* 0.729* 0.902* 0.873* US dollar 0.470* 0.870* 0.795* 0.978* yen 0.192* -0.055 0.055 0.013 yen 0.350* 0.129 -0.013 0.058 DM 0.186* 0.184* -0.030 0.100 DM 0.013 -0.182 0.170 -0.333* adj.R2 0.825 0.863 0.936 0.853 adj.R2 0.484 0.361 0.512 0.737 Thailand constant 0.545 0.138 0.054* 0.034* New Zealand constant 0.788* -0.042 0.170 -0.105 US dollar 1.013* 0.745* 0.809* 0.815* US dollar 0.324* 0.533* 0.671* 0.756* yen 0.069 0.078* 0.107* 0.108* yen 0.307* 0.356 0.149 0.122 DM -0.112 0.075 0.074* 0.053* DM 0.060 -0.280 -0.085 0.011 adj.R2 0.558 0.968 0.999 0.999 adj.R2 0.231 0.192 0.509 0.737

△ln (currency/pound) =constant+α△ln (US$/ pound) +β△ln (¥/pound) +γ△ln (DM/ pound)


－25

－

Table 4 Average and standard deviation of changes in nomial exchange rates (for average: %)

against the US dollar against the Japanese yen against the Deutsche mark 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08Japan average 0.050 -1.451 1.554 -0.701 -0.922 -0.271 1.808 -0.476 st.dev 2.934 3.110 2.156 2.987 2.433 2.000 1.979 2.866 Korea average 0.887 -0.385 0.189 0.137 0.836 1.066 -1.366 0.838 -0.085 0.794 0.442 0.363 st.dev 1.773 0.879 0.670 0.953 3.324 3.195 2.156 2.890 3.171 3.134 3.110 2.810 Singapore average 0 -0.233 -0.196 -0.421 -0.050 1.217 -1.751 0.280 -0.972 0.946 0.057 -0.196 st.dev 1.273 1.209 0.929 1.011 1.990 2.554 1.801 2.439 2.110 2.334 2.408 2.222 Hong Kong average 0.764 -0.005 -0.008 -0.012 0.714 1.445 -1.562 0.689 -0.208 1.174 0.246 0.213 st.dev 2.077 0.165 0.099 2.222 2.889 3.080 2.180 2.994 2.921 2.927 2.864 2.836 Malaysia average 0.174 0.228 0.069 -0.129 0.124 1.679 -1.485 0.572 -0.798 1.407 0.323 0.096 st.dev 1.335 1.215 0.605 1.251 2.212 2.809 2.024 2.931 2.176 2.417 2.751 2.770 Thailand average 0.471 -0.155 0.208 -0.053 0.426 1.296 -1.347 0.648 -0.501 1.025 0.461 0.172 st.dev 2.031 0.815 0.444 0.467 3.539 2.561 1.752 2.576 3.596 2.378 2.456 2.478 Indonesia average 0.891 0.996 0.352 0.336 0.840 2.447 -1.202 1.037 -0.081 2.175 0.606 0.561 st.dev 4.138 3.852 0.170 0.247 5.019 4.482 2.031 2.924 4.903 4.758 2.725 2.788 Phillipines average 1.643 0.152 0.397 0.203 1.593 1.602 -1.158 0.904 0.671 1.331 0.650 0.428 st.dev 4.015 1.442 0.391 1.921 5.201 3.892 2.208 3.895 5.297 3.704 3.029 3.604 China averaga 1.023 0.599 1.488 0.872 0.973 2.050 -0.066 1.573 0.051 1.779 1.742 1.097 st.dev 2.000 2.010 4.089 5.085 2.265 4.206 4.967 5.561 1.989 3.901 6.083 5.549 Australia average 0.450 -0.042 0.731 0.020 0.400 1.409 -0.823 0.721 -0.522 1.138 0.985 0.245 st.dev 2.073 3.298 1.918 1.774 2.347 4.300 2.542 3.561 2.641 4.320 2.857 3.494 New Zealand average 1.178 -0.577 0.604 -0.190 1.128 0.873 -0.950 0.511 0.206 0.602 0.858 0.035 st.dev 2.684 3.672 1.804 1.609 2.758 3.956 2.220 2.947 2.908 4.108 2.849 2.824

－26

－

Table 5 Average and standard deviation of changes in real exchange rates

(for average: %) against the US dollar against the Japanese yen against the Deutsche mark 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08Japan average 0.287 -1.231 1.704 -0.650 -0.865 -0.260 1.795 -0.412 st.dev 3.093 3.278 2.176 2.918 2.511 2.074 1.990 2.841 Korea average 0.584 -0.463 0.016 -0.049 0.298 0.768 -1.689 0.601 -0.568 0.507 0.107 0.189 st.dev 1.647 1.111 0.568 0.953 3.235 3.408 2.345 2.676 3.164 3.285 3.253 2.715 Singapore average 0.212 0.000 -0.034 -0.396 -0.075 1.231 -1.739 0.254 -0.940 0.970 0.056 -0.158 st.dev 1.367 1.279 1.070 1.079 2.417 2.800 1.855 2.458 2.333 2.375 2.327 2.211 Hong Kong average 0.452 -0.159 -0.398 -0.498 0.165 1.071 -2.102 0.152 -0.700 0.811 -0.307 -0.261 st.dev 2.087 0.528 0.591 0.445 3.103 3.287 2.386 2.964 2.788 3.041 3.038 2.862 Malaysia average 0.285 0.377 0.291 -0.255 -0.002 1.607 -1.413 0.394 -0.867 1.347 0.382 -0.018 st.dev 1.490 1.220 0.735 1.173 2.434 2.974 2.004 3.058 2.334 2.460 2.707 2.803 Thailand average 0.455 -0.118 0.099 -0.206 0.168 1.112 -1.605 0.666 -0.697 0.852 0.190 0.089 st.dev 2.310 0.863 0.719 0.883 3.668 2.687 1.720 2.257 3.770 2.401 2.609 2.316 Indonesia average 0.546 0.707 0.243 -0.127 0.259 1.938 -1.461 0.523 -0.606 1.677 0.334 0.110 st.dev 4.083 3.523 0.589 0.663 4.943 4.365 1.867 2.860 4.772 4.363 2.691 2.819 Phillipines average 0.555 -0.001 -0.283 -0.401 0.268 1.224 -1.988 0.249 -0.597 0.963 -0.193 -0.163 st.dev 3.962 1.661 0.813 1.969 5.376 4.242 2.295 4.018 5.425 3.834 3.086 3.594 (Note) China, Australia and New Zealand are excluded because of lack of monthly price date

－27－

Table 6 Autoregression coefficients for changes in nominal and real exchange rates (nominal exchange rates) against the US dollar against the Japanese yen 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08 Japan (-1) 0.234 0.397* 0.341 0.323 Korea (-1) 0.434* 0.857* 0.846* 0.452* 0.442* 0.459* 0.363 0.319* (-2) 0.039 -0.308* (-3) 0.656* (-4) -0.764* Singapore (-1) 0.238 0.333* 0.364 0.439* 0.179 0.451* 0.547* 0.224 Hong Kong (-1) 0.335* -0.123 0.354 0.029 0.319* 0.412* 0.361 0.320* Malaysia (-1) 0.205 0.411* 0.099 0.420* 0.256* 0.508* 0.473 0.337* (-2) -0.157 (-3) 0.340* Thailand (-1) 0.198 0.122 0.226 0.338* 0.148 0.426* 0.383 0.285* (-2) -0.007 (-3) 0.158* Indonesia (-1) 0.020 0.433* 0.403* 0.368* 0.099 0.450* 0.250 0.381* (-2) 0.439* 0.187 (-3) 0.312* Phillipines (-1) 0.185 0.322* 0.646* 0.429* 0.097 0.424* 0.217 0.473* Australia (-1) 0.330* 0.411* 0.403 0.420* 0.183 0.450* 0.023 0.406* (-2) 0.089 -0.353* (-3) 0.038 0.228 (-4) -0.487* -0.256* New Zealand (-1) 0.513* 0.370* 0.207 0.153 0.379* 0.396* -0.095 0.175 (-2) -0.253 (-3) 0.328* (-4) -0.416* China (-1) 0.425* 0.245 0.492* 0.025 0.353* 0.382* 0.396 0.155 (real exchange rates) against the US dollar against the Japanese yen 80.01 85.01 89.01 90.05 80.01 85.01 89.01 90.05 ～84.12 ～88.12 ～90.04 ～95.08 ～84.12 ～88.12 ～90.04 ～95.08 Japan (-1) 0.295* 0.346* 0.283 0.307* Korea (-1) 0.071 0.759* 0.374* 0.210 0.317* 0.361* 0.332 -0.053 (-2) -0.419* Singapore (-1) 0.287* 0.152 0.013 0.255* 0.149 0.455* 0.500* 0.240 Hong Kong (-1) 0.246 -0.190 -0.186 0.205 0.345* 0.307* 0.428 0.013 (-2) 0.466* 0.521* -0.311* (-3) 0.490* Malaysia (-1) 0.238 0.327* 0.021 0.398* 0.269* 0.504* 0.360 -0.048 (-2) -0.298* Thailand (-1) 0.178 0.110 -0.046 0.150 0.152 0.391* 0.452 -0.125* Indonesia (-1) 0.034 0.400* -0.359 0.221 0.093 0.381* 0.371 0.030 (-2) 0.352 (-3) 0.583* Phillipines (-1) -0.046 0.407* 0.219 0.389* 0.000 0.419* 0.318 0.183*


－28

－

Table7 Real money market rates

80.01～84.12 85.01～88.12 89.01～90.04 90.05～ its own its own its own its own past + + + past + + + past + + + past + + + US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. rate rate rate rate Korea Fstats 4.572* 3.000* 2.449* 2.145* 0.874 0.859 0.715 0.671 0.612 2.067* 0.795 29.09 6.198* 6.144* 3.788* 4.337* Ftest 4.572* 1.947 1.015 2.826* 0.874 1.073 0.774 1.553 0.612 3.531 1.190 83.23 6.198* 5.740* 2.007 7.065* constant 0.274* -0.209 0.201 -0.149 0.340* 0.166 0.277 0.162 0.674 -0.944 0.848 -0.391 0.425* 0.384* 0.329* 0.394* RKO(-1) 0.379* 0.265 0.366* 0.268 0.175 0.140 0.224 0.221 0.326 0.525 0.455 0.246 0.546* 0.558* 0.541* 0.564* RUS 0.635 0.607 0.225 0.082 1.786* 0.085 0.705* 0.379 RUS(-1) 0.308 0.463 0.210 0.368 -0.241 -0.084 -0.982* -0.782* RUS(-2) 0.366 0.398 RUS(-3) -0.580 -0.440 RUS(-4) 0.839* 1.076* RJA -0.007 -0.055 -0.060 -0.152 0.001 0.059 0.202 0.074 RJA(-1) 0.027 -0.141 0.091 0.021 0.274 0.249 -0.168 -0.137 Singapore Fstats 0.557 0.778 1.131 0.996 0.246 2.189 0.749 1.666 0.254 0.926 1.212 11.844 0.633 2.785* 1.633 1.917 Ftest 0.557 1.196 1.960 2.912* 0.246 4.601* 1.434 5.517* 0.254 1.780 2.369 37.926 0.633 5.453* 2.969* 5.930* constant 0.456* 0.316 0.240 0.207 0.296* 0.016 0.107 -0.024 0.274 0.417 0.153 -3.809 0.107* -0.036 -0.033 -0.069 RSI(-1) 0.088 0.082 0.047 0.040 0.039 -0.184 -0.025 -0.251 0.064 0.462 -0.200 -6.182 -0.131 -0.339* -0.176 -0.315* RUS 0.148 0.138 0.402 0.434 0.173 8.354 0.066 0.025 0.065 RUS(-1) 0.203 0.216 0.522* 0.646* -0.045 9.848 0.311 0.370* 0.246 RUS(-2) 0.123 0.241 RUS(-3) 0.771* 0.583* RJA -0.116 -0.127 0.028 -0.175 0.075 1.225 0.025 -0.056 RJA(-1) 0.256 0.172 0.067 -0.044 0.390 -0.070 0.370 0.187 Malaysia Fstats 3.371* 1.608 2.746* 1.790 3.548* 2.934* 3.120* 2.477* 0.826 0.590 0.962 72.31 1.371 1.186 1.104 0.930 Ftest 3.371* 0.444 2.502* 2.817* 3.548* 2.606* 2.921* 4.470* 0.826 0.674 1.319 194.56 1.371 1.293 1.127 1.944 constant 0.108 0.007 0.026 -0.012 0.110 -0.155 -0.161 -0.295 0.313* 0.295 0.696 0.628 0.173* 0.139 0.137 0.185 RMA(-1) 0.371* 0.375* 0.249 0.249 0.427* 0.283 0.333* 0.217 -0.327 -0.117 -2.189 -0.709 0.274 0.244 0.298* 0.287 RUS 0.210 0.231 0.230 0.262 -0.157 -0.178 -0.401 -0.424 RUS(-1) -0.233 -0.092 0.277 -0.081 0.416 0.718 0.286 0.337 RUS(-2) -0.078 RUS(-3) 0.734* RJA -0.231 -0.250 0.251 0.089 -0.249 -0.366 -0.097 -0.112 RJA(-1) -0.007 -0.123 -0.003 -0.058 -0.138 -0.213 0.231 0.114 RJA(-2) 0.097 0.497* RJA(-3) 0.161 RJA(-4) 0.291* * significant at 5% level (Note) Korea : 80.01～95.08

Singapore : 80.01～95.08 Malaysia : 80.01～94.12

－29

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Table7 Real money market rates

80.01～84.12 85.01～88.12 89.01～90.04 90.05～ its own its own its own its own past + + + past + + + past + + + past + + + US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. US rate Jap.rate US & Jap. rate rate rate rate Thailand Fstats 2.149 2.345 2.342 2.067 2.797* 1.744 2.354* 1.674 1.120 1.406 2.018 0.974 1.969 0.984 1.524 0.858 Ftest 2.149 2.874* 2.868* 4.737* 2.797* 1.152 2.241 2.945* 1.120 1.813 2.792 2.351 1.969 0.460 1.415 1.348 constant 0.340* -0.181 0.136 -0.160 0.230* 0.103 0.160 0.140 0.438 -0.192 0.347 1.952 0.611* 0.460 0.196 0.225 RTA(-1) 0.243 0.106 0.151 0.044 0.411* 0.369* 0.377* 0.380* 0.341 0.026 -0.042 -1.218 0.269 0.213 0.240 0.248 RTA(-2) -0.446* RUS 0.847* 0.716 0.529 0.327 -0.252 -4.113 0.394 0.087 RUS(-1) 0.154 0.118 -0.149 -0.367 0.408 -0.650 0.303 0.295 RJA 0.395 0.281 0.334* 0.263 -0.041 -0.013 0.472 0.356 RJA(-1) 0.283 0.101 -0.164 -0.147 0.689 1.640 0.329 0.318 RJA(-2) 0.126 RJA(-3) -0.356* Indonesia Fstats 0.842 1.249 1.158 1.928 1.330 4.985* 6.036* 1.018 2.804* 1.703 1.325 0.977 Ftest 0.842 1.875 1.698 5.470* 1.330 7.072* 8.665* 2.321 2.804* 1.090 0.476 1.140 constant 0.567* 0.940 1.462* 1.275* 0.732 0.474 0.418 0.907 0.256 0.240 0.112 0.213 RID(-1) 0.254 0.426 0.110 0.234 -0.181 -0.341 -0.173 0.053 0.447* 0.482* 0.496* 0.511* RID(-2) 0.766 -0.105 RID(-3) 0.513 0.398* RID(-4) -0.748* RUS 0.571 0.297 0.935* -1.252 0.847 1.057 RUS(-1) 0.702 0.181 1.156* 3.793 -0.583 -0.513 RJA -0.761 -1.083 -0.151 -0.033 0.115 0.098 RJA(-1) -0.180 0.022 0.228 0.964 0.257 0.037 RJA(-2) -0.156 RJA(-3) -0.757* RJA(-4) 0.660

* significant at 5% level (Note) Thailand : 80.01～93.02

Indonesia : 86.05～93.02

real and financial linkage in pacific-asia

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