東亞匯率問題(麥金農(nóng))課件

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1、東亞匯率問題(麥金農(nóng))課件The East Asian Dollar Standard and Chinas Exchange Rate Ronald McKinnonStanford UniversityApril, 2005東亞匯率問題(麥金農(nóng))課件The Exchange Rate Debate in the 1990sThe Exchange Rate Debate in the 1990sBefore 1997, East Asian countries, except for Japan, “softly” pegged their exchange rates to the U.

2、S. dollar.1997-98 Crisis: Thailand, Indonesia, Philippines, Korea, and Malaysia are attacked and devaluewith bankruptcies and economic downturns spreading contagiously.The IMF blames the soft pegging for encouraging over borrowing and current account deficits leading unsustainable dollar and yen deb

3、ts. It warns against any return to dollar pegging.Williamson (2000), Kawai (2002), Ogawa and Ito (2002)suggest weighting the Japanese yen more heavily in the currency baskets of the smaller East Asian economies in the face of wide fluctuations in the yen/dollar rate.東亞匯率問題(麥金農(nóng))課件The Debate In the Ne

4、w MillenniumThe Debate In the New Millennium By 2003 into 2005, the East Asian “crisis” and non crisis economies had returned to soft dollar pegging. China and Hong Kong retained hard pegs through the crisis, and Malaysia pegged in Sept 1998 at 3.8 ringgit per dollar. Even the yen/dollar rate is mor

5、e stable. But now all East Asian countries run large current account surpluseseven with net inflows of FDI (China). In 2003 and 2004, only massive official interventions kept their exchange rates from appreciating. Intensified pressure from the IMF, the G-7, and the U.S. Treasury, for China to appre

6、ciate: “There should be more flexible currencies, not only for China but the whole of Asia” Rodrigo de Rato, IMF Managing Director, 29 Sept 2004 at IMF-World Bank Meetings in Washington.東亞匯率問題(麥金農(nóng))課件Table 3: East Asian Current Accounts in Table 3: East Asian Current Accounts in Comparison to the U.S

7、., 1990-2003Comparison to the U.S., 1990-2003 19911992199319941995199619971998199920002001200220032004*Percent of GDPJapan2.03.03.02.72.11.42.33.02.62.52.12.83.23.7Singapore11.311.97.216.217.715.215.622.618.614.519.021.530.919.8Taiwan7.14.13.12.72.13.92.41.32.82.96.49.110.06.6Indonesia-3.3-2.0-1.3-1

8、.6-3.2-3.4-2.34.34.15.34.94.53.90.5Korea-2.8-1.30.3-1.0-1.7-4.4-1.712.76.02.71.91.32.04.2Malaysia-8.5-3.7-4.5-6.1-9.7-4.4-5.913.215.99.48.37.611.113.7Philippines-2.3-1.9-5.6-4.6-2.7-4.8-5.32.49.58.21.85.42.13.2Thailand-7.7-5.7-5.1-5.6-8.1-8.1-2.012.710.17.65.46.15.64.5China3.31.40.01.30.20.94.13.32.

9、11.91.52.92.13.4Hong Kong 1.56.44.36.18.511.08.1United States0.1-0.8-1.2-1.7-1.4-1.5-1.5-2.3-3.1-4.2-3.9-4.6-4.9-5.6Billions of US DollarsTotal East Asia73.8117.5117.8132.993.844.2129.4244.5231.7213.7179.1238.9255.2335.5Total US3.7-48.0-82.0-117.7-105.2-117.2-127.7-204.7-290.9-411.5-393.7-480.9-541.

10、8-661.3Data source: IMF: IFS. *Preliminary from EIU data東亞匯率問題(麥金農(nóng))課件This Paper and McKinnon Book (2005) This Paper and McKinnon Book (2005) The Case for Asian Dollar PegsThe Case for Asian Dollar Pegs East Asian economiesHave sufficient fiscal and monetary control to target exchange rates, but have

11、 more difficulty targeting domestic inflation independently.Are becoming highly integrated economically with more than 50% of trade with each other. They need stable cross rates of exchange.Under developed domestic bond and forward exchange markets make currency risks more difficult to hedge.Current

12、 account surpluses need not diminish if currencies appreciate, as is likely under floating東亞匯率問題(麥金農(nóng))課件The Rise of Intra Regional Trade in East Asia, 1980-The Rise of Intra Regional Trade in East Asia, 1980-2002 (share of total exports)2002 (share of total exports)Exports01020304050Intra East AsiaUn

13、ited StatesRest of the WorldPercentage198019902002East Asia: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand 東亞匯率問題(麥金農(nóng))課件The Rise of Intra Regional Trade in East Asia, 1980-The Rise of Intra Regional Trade in East Asia, 1980-2002 (share of total imp

14、orts)2002 (share of total imports)Imports0102030405060Intra East AsiaUnited StatesRest of the WorldPercentage198019902002East Asia: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand 東亞匯率問題(麥金農(nóng))課件Invoice Currencies in Korean Trade, 1980Invoice Currencie

15、s in Korean Trade, 19802002 (percent)2002 (percent) Exports (receipts)Imports (payments)$DMother$DM other198096.11.22.00.40.393.23.71.70.50.9198594.73.70.60.30.782.412.32.00.52.8199088.07.82.10.51.779.112.74.10.93.4199588.16.52.40.82.279.412.73.80.73.4200084.85.41.80.77.380.412.41.90.84.4200286.85.2

16、5.80.81.480.612.15.40.61.3Source: Bank of Korea: Monthly Statistical Bulletin. Trade in services is not included. DM represents the euro starting from 2000.東亞匯率問題(麥金農(nóng))課件Figure 1: East Asian Exchange Rate Pegs against Figure 1: East Asian Exchange Rate Pegs against the Dollar, 1980:01-2004:04 (Monthl

17、y)the Dollar, 1980:01-2004:04 (Monthly) Taiwan DollarSingapore DollarHong Kong DollarChinese Yuan01002003004005006007008001980.011983.011986.011989.011992.011995.011998.012001.012004.0101002003004005006007008001980.011983.011986.011989.011992.011995.011998.012001.012004.01010020030040050060070080019

18、80.011983.011986.011989.011992.011995.011998.012001.012004.0101002003004005006007008001980.011983.011986.011989.011992.011995.011998.012001.012004.01東亞匯率問題(麥金農(nóng))課件Figure 1 (Continued) Crisis Economies, 1980:01-Figure 1 (Continued) Crisis Economies, 1980:01-2004:04 (Monthly)2004:04 (Monthly)Thai BahtP

19、hilippine PesoMalaysian RinggitKorean WonIndonesian Rupiah050010001500200025001980.011983.011986.011989.011992.011995.011998.012001.012004.0101002003004005006007008001980.011983.011986.011989.011992.011995.011998.012001.012004.0101002003004005006007008001980.011983.011986.011989.011992.011995.011998

20、.012001.012004.0101002003004005006007008001980.011983.011986.011989.011992.011995.011998.012001.012004.0101002003004005006007008001980.011983.011986.011989.011992.011995.011998.012001.012004.01東亞匯率問題(麥金農(nóng))課件Frankel and Wei Regression (1994)Frankel and Wei Regression (1994)trancMarkSwissfancYenSwissfr

21、sfrancDollarSwisssfrancurrencySwiEastAsiancueeeetttt4321Problem: For any one East Asian currency other than Japan, how do you measure the weight of each major currencythe dollar, yen, or euroin its currency “basket”?Answer: Choose an outside currency as numeraire, e.g., the Swiss Franc, to measure a

22、ll exchange rates in the above regression.東亞匯率問題(麥金農(nóng))課件Figure 2: Dollars Weight in East Asian Currency Baskets, Figure 2: Dollars Weight in East Asian Currency Baskets, 130-Trading-Day Rolling Regressions, 1990:01-2004:05130-Trading-Day Rolling Regressions, 1990:01-2004:05 (Daily)(Daily) Taiwan Doll

23、arSingapore DollarHong Kong DollarChinese Yuan0.00.20.40.60.81.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.20020.00.20.40.60.81.01.21.41.601.01.199001.01.199301.01.199601.01.199901.01.20020.00.20.40.60.81.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.20020.00.20.40.60.8

24、1.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002東亞匯率問題(麥金農(nóng))課件Thai BahtPhilippine PesoMalaysian RinggitKorean WonIndonesian Rupiah0.00.20.40.60.81.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.20020.00.20.40.60.81.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 0

25、1.01.20020.00.20.40.60.81.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.20020.00.20.40.60.81.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.20020.00.20.40.60.81.01.21.41.601.01.1990 01.01.1993 01.01.1996 01.01.1999 01.01.2002Figure 2: Dollars Weight in East Asian Currency

26、Baskets, Figure 2: Dollars Weight in East Asian Currency Baskets, 130-Trading-Day Rolling Regressions, 1990:01-2004:05130-Trading-Day Rolling Regressions, 1990:01-2004:05 (Daily)(Daily) 東亞匯率問題(麥金農(nóng))課件Table 1: Standard Deviations of Daily Exchange Table 1: Standard Deviations of Daily Exchange Rate Fl

27、uctuations against the DollarRate Fluctuations against the DollarPre-crisisCrisisPost-crisis2003/2004Chinese Yuan0.030.010.000.00Hong Kong Dollar0.020.030.030.05Indonesian Rupiah0.174.431.110.43Korean Won0.222.350.430.43Malaysian Ringgit0.251.530.000.00Philippine Peso0.371.310.510.25Singapore Dollar

28、0.200.750.270.29New Taiwan Dollar0.190.500.210.20Thai Baht0.211.550.380.27Japanese Yen0.671.000.640.57Euro (Deutsche Mark)0.600.580.640.64Swiss Franc0.690.660.660.70Data source: Datastream. Percent changes. Pre-crisis = 02/01/94 05/30/97, crisis = 06/01/97 12/31/98, post-crisis = 01/01/99 05/17/04,

29、2003/2004 = 01/01/03 05/17/04. 東亞匯率問題(麥金農(nóng))課件Dollar dominance in East AsiaDollar dominance in East AsiaOriginal sinUnderdeveloped domestic bond market or in some cases developed domestic bond market (India)Debtors cannot borrowborrow in own currency nor can they hedge their net dollar indebtedness.Cu

30、rrency mismatch and maturity mismatch. Eichengreen and Hausmann 1999, Hausmann and Panizza 2003Conflicted virtueCreditors cannot lendlend in their own currencies nor can they hedge their net dollar assets.Currency mismatch but no necessary maturity mismatch McKinnon and Schnabl 2004, McKinnon 2005東亞

31、匯率問題(麥金農(nóng))課件Fun with TranslationFun with Translation 名詞翻譯 Conflicted virtue High-saving dilemma: 高儲蓄兩難 Original sin: 原罪 (Christian) Sin from the past life: 前世之罪 (Buddhist)東亞匯率問題(麥金農(nóng))課件Conflicted virtueConflicted virtueHigh-saving countries run current account surpluses but lend in dollars. However, a

32、s their stocks of dollar claims cumulate:Foreigners start complaining that the countrys ongoing flow of trade surpluses is unfair and the result of having an undervalued currency.Domestic private holders of dollar assets worry more about a self-sustaining run into the domestic currency forcing an ap

33、preciation.Domestic interest rates are bid down, perhaps to zero東亞匯率問題(麥金農(nóng))課件Conflicted virtue: Conflicted virtue: To appreciate or not to appreciateTo appreciate or not to appreciate As runs into the domestic currency out of dollars begin, the government is “conflicted” because (repetitive) appreci

34、ation could set in train serious deflation ending with a zero interest liquidity trap (Japan) But failure to appreciate could elicit trade sanctions from foreigners. A “free” float becomes an indefinite upward spiral東亞匯率問題(麥金農(nóng))課件The story of Japan (I)The story of Japan (I) There were repetitive appr

35、eciations of yen from 1970s to mid-90s under mercantile pressure from trade partnersparticularly the United States. But trade surpluses continued to cumulate. Reason: Exchange rate changes only determine domestic inflation or deflation, not trade balance. The simple-minded elasticities approach (Mar

36、shall-Lerner condition) to determining the trade balance is invalid in financially open economies. McKinnon and Ohno 1997東亞匯率問題(麥金農(nóng))課件The story of Japan (II)The story of Japan (II) Negative risk premium Goyal and McKinnon 2003To maintain portfolio balance, Japanese financial institutions demand a hi

37、gher return on dollars (which is riskier given the volatility in exchange rate).But the interest rate on dollar assets is determined internationally. Thus the interest rate on yen assets was forced down leading to a zero interest liquidity trap by the end of 1996.東亞匯率問題(麥金農(nóng))課件Is China like Japan?Is

38、China like Japan? China has a big advantage over Japan:The RMB exchange rate has been, and can be, more credibly maintained at the current level without disturbing domestic price level. And a disadvantage:Chinas net FDI inflows are much larger than Japans. FDI can be seen as illiquid liabilities but

39、 adds to liquid dollar claims.東亞匯率問題(麥金農(nóng))課件Figure 7: International Investment Position Figure 7: International Investment Position of Japan (Billions of Dollars)of Japan (Billions of Dollars) -20002004006008001000120014001600198019821984198619881990199219941996199820002002billions of dollarstotalpub

40、licprivateSource: Japan: Ministry of Finance.東亞匯率問題(麥金農(nóng))課件The The Yen-Dollar Nominal Exchange RateYen-Dollar Nominal Exchange Rate, , 1970 - 20051970 - 2005Source: International Financial Statistics, IMF東亞匯率問題(麥金農(nóng))課件Implications for Interest Rates: Implications for Interest Rates: The Negative Risk

41、PremiumThe Negative Risk Premium To sustain the interest differential between yen and dollar assets, consider an augmented interest parity relationship: From the 70s to the mid 90s, the interest differential, i i*, was driven primarily by the negative term from the erratically appreciating yen, whic

42、h peaked in April 1995. Since the mid-90s, 0 and the interest differential has been driven primarily by the term, which is also negative (Goyal and McKinnon 2003, McKinnon 2005).esii* i sJapanese nominal interest rate.Yen price of one dollarRisk premium on yen assetsi*U.S. nominal interest rateExpec

43、ted depreciation of the yeneseses東亞匯率問題(麥金農(nóng))課件Figure 8: Interest Rates in the US and Japan, Figure 8: Interest Rates in the US and Japan, Long-Term: 10-Year US Treasuries and JGBs, Long-Term: 10-Year US Treasuries and JGBs, 1980-20041980-200402468101214161980M11983M11986M11989M11992M11995M11998M1200

44、1M12004M1percent per annumJapanUS東亞匯率問題(麥金農(nóng))課件Figure 8: Interest Rates in the US and Japan, Figure 8: Interest Rates in the US and Japan, Short-Term: Money Market Rates, 1980-2004Short-Term: Money Market Rates, 1980-2004024681012141618201980M11983M11986M11989M11992M11995M11998M12001M12004M1percent p

45、er annumJapan (call money rate)US (federal funds rate)東亞匯率問題(麥金農(nóng))課件Interest Differentials, Portfolio Balance, and Interest Differentials, Portfolio Balance, and the Impossibility Free Floatingthe Impossibility Free Floating As dollar claims accumulate, a sufficiently large interest differential to i

46、nduce private portfolio holdings of dollars becomes unsustainableas in Japan when yen interest rates approach zero. The problem worsens when US interest rates are unusually low, as in 2003 and 2004. Then, increasing official foreign exchange reserves become the dominant mode of financing Asian curre

47、nt account surpluses. And the private unwillingness to hold dollars makes a free float impossible. 東亞匯率問題(麥金農(nóng))課件Table 4: East Asian Current Accounts (CA) Table 4: East Asian Current Accounts (CA) and Changes in Foreign Reserves (RC): 1997 and Changes in Foreign Reserves (RC): 1997 - 2003- 2003 Billi

48、ons of Dollars 19971998199920002001200220032004*JapanCA9711911512088112136172 RC1-574704164201171SingaporeCA1519151316192820 RC-6423-57148TaiwanCA738918262920 RC-5716115394535IndonesiaCA-54687881 RC-2642-1440KoreaCA-8402412861228 RC-143222227183444MalaysiaCA-610138771116 RC-655-1141012PhilippinesCA-

49、42761423 RC-3240000-1ThailandCA-3141296887 RC-1235-20638ChinaCA3731212117353155 RC35510114774117181HK SARCAn.a.310710141713 RC29-37114165East AsiaCA133241230217182248255335 RC1956148117109216434463Data source: IMF: IFS. *Preliminary from EIU data東亞匯率問題(麥金農(nóng))課件Figure 10: US and cumulative East Asian F

50、igure 10: US and cumulative East Asian Current Accounts (Billions of US Dollars)Current Accounts (Billions of US Dollars) Data source: IMF: IFS. 東亞匯率問題(麥金農(nóng))課件 “Revived Bretton Woods” EA Exchange Rates deliberately undervalued to generate a trade surplus.Exports are desired to promote “development”,

51、particularly in manufacturing. Asian governments are willing to invest in very low yield US Treasuries, and to accept American FDI with high profit repatriation.US gets finance for its fiscal deficits The ongoing US current-account deficit need not be corrected in the near futureThe Dollar Standard

52、and East Asias Trade Surplus: The DFG Interpretation* Dooley, Folkerts-Landau, and Garber (2003)-(2004).東亞匯率問題(麥金農(nóng))課件The Dollar Standard and East Asias Trade Surplus: The MCK Interpretation, I The current regime:With the dollar as international money, the efficiency of world trade and payments incre

53、ases. With a stable U.S. price level, peripheral countries will peg to the dollar to anchor their own price levelsparticularly East Asian countries highly integrated in trade.They converge to relative purchasing power parity (PPP) if nominal exchange rates remain fixed: no exchange rate “undervaluat

54、ion”東亞匯率問題(麥金農(nóng))課件The Dollar Standard and East Asias Trade Surplus: The MCK Interpretation, II Proposed East Asian exchange rate changes: discrete appreciation or floatingNo predictable effect on net trade balancesAny appreciation will slow economic growth and lead to deflationLoss of credibility to

55、maintain the exchange rate at any levelPossibility of an indefinite upward spiral in the dollar value of East Asian currencies 東亞匯率問題(麥金農(nóng))課件The Dollar Standard and the United States: MCK InterpretationThe unlimited US credit line with the rest of the world softens borrowing constraints on US househo

56、lds, and the federal government. Federal fiscal deficits are financed by selling dollar bonds to foreigners at low interest rates.Large current account deficits are sustainable “indefinitely” because of the central international monetary position of the United States.The upshot of easy foreign borro

57、wing is: falling US saving, both government and private, for more than 20 years. deindustrialization, loss of jobs in manufacturing, leading to protectionist pressure.東亞匯率問題(麥金農(nóng))課件US Current Account and Manufacturing US Current Account and Manufacturing Sector Trade Balance: 1965 - 2004Sector Trade

58、Balance: 1965 - 2004(Percentage of GDP)東亞匯率問題(麥金農(nóng))課件Projection of Labor Growth in Manufacturing under Projection of Labor Growth in Manufacturing under Balanced Manufacturing Trade: 1965 - 2004Balanced Manufacturing Trade: 1965 - 2004(Share of US Labor Force)東亞匯率問題(麥金農(nóng))課件American Fiscal and Trade De

59、ficits The Fed creates the definitive international money. An attack on the dollar is unlikely because US debts are denominated in its own currency. But heavy US foreign borrowing is transferred in real terms through large American trade deficits, mainly in manufactures. The American concern with de

60、-industrialization, i.e., unduly rapid job losses in manufacturing, should be linked to Federal fiscal deficits and low American personal saving. 東亞匯率問題(麥金農(nóng))課件The Exchange Rate and International Adjustment Two Contradictory ViewsA flexible exchange rate is useful for adjusting the net trade balance

61、to net international capital flowsA fixed exchange rate can anchor the domestic price level by inducing money wage growth that balances differential productivity growth across countries This paper pursues 2. on the presumption that 1. is false and misleading for open economies McKinnon and Ohno (199

62、7) Chs 6 and 7東亞匯率問題(麥金農(nóng))課件Balancing International Competitiveness:The Scandinavian Model (SM) Wage adjustment and relative Purchasing Power Parity (PPP) under a fixed exchange rateSweden, 1948 to 1971 5.17 kronor per dollarJapan, 1949 to 1971360 yen per dollar China, 1994 to 20058.28 yuan per dolla

63、r東亞匯率問題(麥金農(nóng))課件Scandinavian ModelAssumptions: Inflation in tradables sector converges to world inflation plus any exchange rate depreciation (relative PPP) Wage bargaining is initiated in the high-productivity-growth tradables sector (manufactures) subject to the exchange rate constraint Labor “solid

64、arity”: wage growth in other sectors with lower productivity growth follows that in tradables Result: International competitiveness between fast- and slow- growing economies is automatically balanced by differential growth in wages.東亞匯率問題(麥金農(nóng))課件SM Definitions= world market prices for tradables= exch

65、ange rate = aggregate price level = domestic price level for tradables and nontradables, respectively= wage rate in the tradable and nontradable sector, respectively= labor productivity in the tradable and nontradable sector, respectivelywpNTpp,NTww ,NTqq ,ep東亞匯率問題(麥金農(nóng))課件SM AssumptionsNTNTNTwNNNTNTT

66、TwTqqpppqqepqwpwwqpwepp)1 (Relative PPPWage bargaining in tradables: constant factor sharesLabor solidarityNontradables price based on labor cost General price index ( CPI) with constant weightsHigher productivity growth in tradables 東亞匯率問題(麥金農(nóng))課件SM: General Supply-Side Inflation No independent demand-side national monetary policy Tradable price increases are transmitted directly into domestic inflation through the foreign exchanges Additional general price inflation is proportional to the diffe