1 / 26

The Evolutionary Synchronization of Exchange Rates System in ASEAN+6

The Evolutionary Synchronization of Exchange Rates System in ASEAN+6. Xiaobing Feng Haibo Hu Xiaofan Wang fxb@sjtu.edu.cn. Motivation. Formulating a single currency in East Asia is desirable but challenging. Reasons. Lack of political commitments in the region,

bailey
Download Presentation

The Evolutionary Synchronization of Exchange Rates System in ASEAN+6

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. The Evolutionary Synchronization of Exchange Rates System in ASEAN+6 Xiaobing Feng Haibo Hu Xiaofan Wang fxb@sjtu.edu.cn

  2. Motivation • Formulating a single currency in East Asia is desirable but challenging

  3. Reasons • Lack of political commitments in the region, • Diversity of exchange rate regimes • Makes it hard to coordinate among nations

  4. Motivation • Very little synchronization or co-movement of exchange rates among these countries. • Whether currencies in the region fluctuate in a completely different manner or they behave in a synchronized pattern?

  5. Literature Review • [1]X,Li Y,Jin and G.R.Chen , Physica A, 343(2004)573. • [2]R.McKinnon. G. Schnabl 2003 “Synchronized Business Cycles in East Asia: Fluctuations in the Yen/Dollar Exchange Rate and China’s Stabilizing Role” Working paper, Stanford University. • [3] S,Kang,Y Wang, and R.Y.Deok 2002 “Exchange Rate Co-movements and Business Cycle Synchronization between Japan and Korea” Asian Development Bank Institute Research Paper40.

  6. Two Questions • Do they still stick to the “Asian Dollar Standard” or they will adopt a different regime like China?

  7. Two Questions • If they decide to reduce the correlation with the US Dollar, do they act independently or they will take coordinated collective action?

  8. Methodology • Random matrix theory • Correlation Matrix • Cross Sample Entropy,Cross Entropy

  9. Stationary Tests

  10. Transformed to be stationary

  11. Cross Sample Entropy

  12. Cross Entropy • where p is the “true” distribution, e.g. US dollar exchange rate distribution; • q is a given probability distribution, for example RMB exchange rate distribution. • is the Kullback-Leibler divergence of q from p (also the relative entropy). When p is the normal distribution with mean 1 and standard deviation 1 and q is the normal distribution with mean 2 and standard deviation 2,

  13. Analytic Representation

  14. RMT

  15. Figure 1 Eigenvalue Density before Reform 1.4 1.2 1 Probability 0.8 0.6 0.4 0.2 0 0 1 2 3 4 5 6 Eigenvalue

  16. Figure 2. Number of Eigenvalues outsied Random Prediction before Reform 6 5 Before Reform 4 3 2 Random 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

  17. Figure 3.Eigenvalue Density After Reform 0.8 0.7 0.6 0.5 Probability 0.4 0.3 0.2 0.1 0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Eigenvalue

  18. Figure 4. Number of Eigenvalues outside Random Prediction after Reform 4.5 4 3.5 After Reform 3 2.5 2 1.5 Random 1 0.5 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

  19. Conclusion • 1. Exchange rate markets in Asia are surprisingly collectively correlated. • The temptation of central bank intervention in the foreign exchange markets plays a role for such an outcome, • The relative thin markets could be another reason that attributes to the inefficiency.

  20. Conclusion • 2.After the China exchange rate reform, which aims to increase the flexibility of exchange rate movements, the deviation from the RMT prediction remains the same.

  21. Conclusion • The interaction among Asian currencies has been intensified; • The dependence upon US Dollar has been weakened.

More Related