Exchange Rate Adjustment And Output In SouthEast Asia

Main Article Content

Kamal P. Upadhyaya
Robert Rainish
Neetu Kaushik
Rabindra N. Bhandari

Keywords

Currency Devaluation, South-East Asia, Panel Data, Cointegration, Error Correction Model

Abstract

This paper studies the effect of currencydevaluation on aggregate output level in South- East Asian countries usingpanel data from Thailand, Malaysia, Indonesia and the Philippines for a periodfrom 1980 to 2010. An empirical modelthat includes monetary, fiscal and exchange rate variables is developed. Two versions of the model, one with realexchange rate and another with nominal exchange rate and foreign-to-domesticprice ratio are estimated. An errorcorrection model is developed and the time series properties of the panel dataare diagnosed before estimating the model.The estimated results suggest that currency devaluations are contractionaryin the short run and the intermediate run and this contractionary effect comesfrom the change in nominal exchange rate and not from the change in foreign-to-domesticprice ratio.

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