Some macroeconomic issues under alternative exchange rate regimes (China, Japan, Korea, Singapore)

This dissertation examines some macroeconomic issues under alternative exchange rate regimes. Chapter I provides an overview of the dissertation. Chapter 2 investigates the inflation insulation properties of different exchange rate regimes in a small open economy setting. Specifically, it examines how inflation rates in two small open economies, namely Hong Kong and Singapore, with different exchange rate regimes, interact with those in the U.S. It is found that Hong Kong inflation rates are more responsive to US shocks than Singapore inflation rates. The different responses to U.S. shocks are consistent with the theoretical predictions of the differences in exchange rate regimes adopted by the two economies.; Chapter 3 looks at whether the Asian countries are suitable for a currency union and how their outputs will be affected in a currency union. The output cycles synchronization criterion is used to evaluate whether China, Japan, and Korea are suitable for a currency union. It is found that the countries' real per capita GDPs are moving together in the long- and short-run. According to the optimum currency areas theory, these findings imply the countries are suitable for a currency union. Then the chapter moves on to estimate these countries' output losses if they relinquish their individual monetary policies to form a currency union. The results indicate the output losses for these economies are small as a whole and are only moderate individually in the worst-case scenario.; The fourth chapter investigates the currency union effect on trade by examining how the European Monetary Union (EMU) affects trade. Current empirical research results on the currency union effect on trade are ambiguous. To investigate the EMU effect on trade, the chapter studies the bilateral trade dynamics of a group of OECD countries from 1988 to 2001. Since the EMU countries have been taking steps to further integrate their economies, the chapter also examines whether it is the one currency, or the deeper economic integration, or both that promote trade. The result indicates that the EMU, but not the further economic integration, promotes trade.