The Linearity Property of ASEAN-5 Real Exchange Rates in Pre-Asian Currency Crisis Period

  • Venus Khim- Sen Liew Faculty of Economics and Management Universiti Putra Malaysia

Abstract

This study extends the work of Liew et al. (2003) in two directions. First, it examines whether or not the 1997 Asian currency crisis has resulted in the nonlinearity of ASEAN-5 real exchange rates. Second, it characterizes the type of nonlinearity governing these rates. Results of the current study, among others, show that nonlinearity existed even before the outbreak of the crisis, suggesting that nonlinearity in these rates is not crisis-induced. Moreover, this study provides robust empirical evidence that most of the pre-crisis ASEAN-5 real exchange rates exhibit LSTAR-type nonlinear dynamics, indicating that the market responds with respect to (1) appreciation and depreciation of real exchange rates and (2) the overvaluation and undervaluation of nominal exchange rates towards the purchasing power parity equilibrium levels are asymmetrical in nature. This study is important to central banks and other foreign exchange market players in this ASEAN region especially in the sense that it provides insightful information regarding the effective way of understanding, measuring and monitoring the ASEAN- 5 exchange rates movement.

 

Published
2020-03-10
How to Cite
SEN LIEW, Venus Khim-. The Linearity Property of ASEAN-5 Real Exchange Rates in Pre-Asian Currency Crisis Period. International Journal of Management Studies, [S.l.], v. 11, n. 2, p. 43-61, mar. 2020. ISSN 2180-2467. Available at: <http://e-journal.uum.edu.my/index.php/ijms/article/view/9175>. Date accessed: 09 july 2020.