Optimal common currency basket in East Asia

Pontines, Victor

doi:10.1080/13504850701335392

Cited by 10 publications

(6 citation statements)

References 6 publications

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“…The rationale being that, in line with what we obtained from the above, the number and 12 As previously shown by Pontines (2009), avoiding the arbitrary choice of an economic variable or indicator to calculate the currency weights and resorting to a more scientific method of deriving the optimal currency basket weights via an optimal control method gives rise to an ACU that can deliver greater intra-regional exchange rate stability.…”

Section: Summary and Implications Of The Resultsmentioning

confidence: 81%

Asian Currency Unit (ACU), deviation indicators and exchange rate coordination in East Asia: A panel-based convergence approach

Pontines

You

2015

Japan and the World Economy

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Employing the panel convergence method of Phillips-Sul (2007) to the nominal deviation indicators of two recent unofficial constructions of an Asian Currency Unit (ACU) index, this paper examines the existence and extent of convergence in the movements of East Asian currencies against the ACU. Empirical results reveal that intra-East Asian exchange rate movements have not converged to form one, cohesive and unified bloc where currencies share homogenous movements, regardless of whether one examines the data on intra-East Asian exchange rate movements before or after the collapse of Lehman Brothers in September 2008. Instead, a separate number of convergent clubs or blocs in the region have formed in recent years. Finally, and most importantly, we observe at the end of the period of our examination that economies in the region are, generally, converging at different speeds to two opposing poles of convergence, that is, groups of relatively depreciating currencies and, on the other, groups of relatively appreciating currencies. JEL: F31, F36, C33

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Section: Summary and Implications Of The Resultsmentioning

confidence: 81%

Asian Currency Unit (ACU), deviation indicators and exchange rate coordination in East Asia: A panel-based convergence approach

Pontines

You

2015

Japan and the World Economy

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“…Some studies have involved in analysis from this angle. For example, [4] studied the optimal weights of G-3 currency basket under a variance minimization framework. Reference [5] investigated the relationship and weights of major currencies in the currency basket of China based on the LA-VAR model.…”

Section: Introductionmentioning

confidence: 99%

Analysis of a Basket of Currencies Portfolio Based on Copula-GARCH Method

Bai-qi

2010

2010 Third International Conference on Business Intelligence and Financial Engineering

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This paper presents a new quantitative approach for finding the optimal weights of currency basket, with which the exchange rate risk of the basket is minimized. The article employs t-GARCH and Copula model for better measuring the dependency of currencies in basket. "Maximization by Parts in Likelihood" method is also used to improve the precision of parameters estimation. Our model is applied to daily returns of four currencies in a basket. Taking VaR as the measurement of risk, the empirical result suggests a larger weight should be optimally accorded to the dollar though there is a nonnegligible role for the Euro and Japanese yen.

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“…For a recent survey of its empirical applications, see for instance, Rocco (2012). Some particular examples of the application of the extreme value distribution were made in the context of identification of currency crises, e.g., Pozo and Dorantes (2003), Pontines andSiregar (2007, 2008) as well as in asset price booms, e.g., Cecchetti (2006) and Gochoco-Bautista (2008).…”

Section: Some Long-term Considerations For the Role Of The Acu Deviatmentioning

confidence: 99%

“…In contrast, if the reduced normalized value in exchange of the US dollar rises, it means that the value of the US dollar rises on average against the national currencies used in the computation 16 An ACU index based on a weighted average of regional currencies recalls the European Currency Unit (ECU) which was created in March 1979 under the European Monetary System (EMS) and remained in operation until the launch of the euro in January 1999. 17 A major part of this section is based on Pontines and Rajan (2008) and Pontines (2009). of the geometric mean of the basket of national currencies (Hovanov, Sokolov, and Kolari, 2004).…”

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How Useful Is an Asian Currency Unit (ACU) Index for Surveillance in East Asia?

Pontines

2013

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan AbstractAn 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 trajectory of East Asian currencies relative to this regional ACU average or benchmark is that there is a formation of two contrasting groups of countries in the region-one a group of strong currencies and the other a group of weak currencies. We emphasize that the implication of this contrasting trajectory in East Asian intra-regional exchange rates is to disturb the competitive trading relationships in the region which may result in wasteful beggar-thyneighbor policies in the region. As emphasized by other recent studies, e.g., Kawai and Takagi (2012), the region needs a kind of framework for exchange rate policy coordination that will promote intra-regional exchange rate stability. We suggest several ways in which the region can capitalize on using this ACU index in the immediate term for surveillance purposes, particularly, for purposes of assessing "over-and undervaluation" of the individual currencies from the regional ACU average and for flagging emerging vulnerabilities in individual economies in the region. JEL Classification: F15, F31, F41ADBI Working Paper 413 Pontines

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Optimal common currency basket in East Asia

Cited by 10 publications

References 6 publications

Asian Currency Unit (ACU), deviation indicators and exchange rate coordination in East Asia: A panel-based convergence approach

Asian Currency Unit (ACU), deviation indicators and exchange rate coordination in East Asia: A panel-based convergence approach

Analysis of a Basket of Currencies Portfolio Based on Copula-GARCH Method

How Useful Is an Asian Currency Unit (ACU) Index for Surveillance in East Asia?

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