Testing Real Exchange Rate In 10 Asian Countries : Yuan Or Yen

Choong, Xin Yi (2008) Testing Real Exchange Rate In 10 Asian Countries : Yuan Or Yen. [Final Year Project Report] (Unpublished)

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Abstract

This study applies a number of both univariate and panel unit root tests for time series data to consider the Purchasing Power Parity (PPP) hypothesis within ten ( I 0) Asian countries with the Chinese Yuan and Japanese Yen as their numeraires. Real exchange rates data spanning from 1981:MI till 2006:M10 is utilized for the stationarity tests. It is found that the Yuan based countries do not exhibit the mean reverting behaviour for all the IO currencies with all the econometric modeling employed. On the other hand, there are selected currencies which are found to be stationary against the Yen. Hence, this study may safely suggest that the recent talks about Asian Monetary Union may be foreseeable with Japan as the region's leader. However, as the empirical results may show that only selected countries are able to hold the theory of PPP against the Yen, thus the formation of the union may as well start off with the appropriate countries initially.

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