Exchange Rates Under The East Asia Dollar Standard: The Future Of East Asian Economies

Abstract

The effects of fluctuations in the yen/dollar exchange rate on the business cycle of the smaller East Asian economies are examined in this paper.  The cointegration error-correction model is employed to examine the nature of the interrelationship between the yen/dollar exchange rate and the economic stability of the East Asian countries. The empirical results reveal strong and lasting effects of changes in the yen/dollar exchange rate on the economic income and exchange rate stability of the East Asian countries. The results also indicate that stabilizing the yen/dollar exchange rate with the East Asian business cycle would benefit Japan as well as the economies of East Asia.