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on South East Asia |
| By: | Chow, Hwee Kwan (Asian Development Bank Institute) |
| Abstract: | Notwithstanding incumbency advantages and network effects enjoyed by the United States (US) dollar, considerations about the stability of its value have led Asian countries to fear they are holding their foreign exchange reserves in a depreciating currency. At the same time, it pays for the regional countries to adjust their reserve currency composition to match the point of reference of their exchange rate policy. This paper examines empirically which regional currency or currencies seem to matter for exchange rate determination in Asia beyond the very short term. To this end, we employ country-specific Vector Autoregressive (VAR) models to compare the relative impact which fluctuations in the Asian Currency Unit (ACU), yuan and yen separately have on movements of Asian currencies. Contrary to recent evidence based on daily data, we found monthly exchange rates variations in the region are more heavily influenced by the cumulative effect of key Asian currencies than by the yuan or the yen individually within the sample period we used. To the extent that exchange rates in the region shift over time from benchmarking the US dollar towards a broad range of Asian currencies, Asian central banks will find it more attractive to cross-hold Asian bonds. This calls for the development of deep private markets in such assets, as well as institutional prerequisites for internationalizing key regional currencies. |
| Keywords: | asian currency unit; asian currencies; foreign exchange reserves; exchange rate policy; asian central banks |
| JEL: | F31 F33 |
| Date: | 2011–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0285&r=sea |
| By: | Park, Yung Chul (Asian Development Bank Institute) |
| Abstract: | This paper analyzes the role and scope of macroprudential policy in preventing financial instability in the context of East Asian economies. It analyzes the behavior of the housing market in a dynamic setting to identify some of the factors responsible for the volatility of housing markets and their susceptibility to boom–bust cycles, which it identifies as a key source of financial imbalances in these economies. It then discusses the causal nexus between price and financial stability and the roles and complementary nature of macroprudential and monetary policies in addressing aggregate risk in the financial system. The paper identifies currency and maturity mismatches, which contributed to the 1997–1998 Asian financial crisis, as ongoing concerns in these economies although the high levels of reserves in the region now act as a buffer. |
| Keywords: | macroprudential policy; monetary policy; east asian economies; asian housing market; financial imbalances; asian financial crisis |
| JEL: | E52 E58 G15 G28 |
| Date: | 2011–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0284&r=sea |
| By: | Kohpaiboon, Archanun (Asian Development Bank Institute); Poapongsakorn, Nipon (Asian Development Bank Institute) |
| Abstract: | This paper illustrates the upgrading experiences of the automotive and hard disk drive (HDD) industries in Thailand, chosen because of their outstanding export performance in the developing world. An understanding of their upgrading experiences can shed some light on the ongoing debate regarding the relative importance of international production networks (IPNs) and industrial clusters (ICs) and their implications for prudential industrial policy. The impact of the recent global recession is also discussed in this paper. There is evidence of industrial upgrading in both the automotive and HDD industries. Yet one primary policy challenge still remains, that is, the limited role of indigenous suppliers in the multinational enterprise (MNE) production networks. This limited role is, to a certain extent, related to the overall incentive structure. Where these two industries differ is in their mode of networking, that is, whether they are part of an IPN or an IC. In the case of the automotive industry, industrial clustering has been observed and has reached a level where the local content of a locally manufactured vehicle is approaching 100%. In the case of the HDD industry, industrial clustering has naturally occurred and reached a certain level. |
| Keywords: | industrial upgrading; international production networks; industrial clusters; automotive industry; hard disk drive industry; thai manufacturing |
| JEL: | F23 L62 L63 O33 O53 |
| Date: | 2011–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0283&r=sea |
| By: | YOSHINO Naoyuki |
| Abstract: | This paper comprises three sections. First, it examines whether or not and how banks use non-quantitative data on borrowers, such as the management skills and personality of owners of small and medium-sized enterprises (SMEs), when making lending decisions. Second, it explores the possibility of utilizing data collected from SMEs to assess the risk of their default. Third, it proposes a way to provide money to start-up companies and riskier businesses in the region.<br /><br />The first chapter is based on data collected through an interview survey conducted by Professor Tadanori Nemoto (Chuo University), Wako Watanabe (Keio University), and Yoshiaki Ogura (Ritsumeikan University). They found that qualitative data are used more often at the branch office level than at the headquarters level in making lending decisions. This shows that those working at headquarters prefer to use solid data when making their lending decisions whereas intuition and the borrowers' behavior play a large part in the decision process by those working at branches.<br /><br />In future research, an empirical analysis will be required to determine whether qualitative data are in fact sometimes important for SME lending and whether quantitative data are important even in the case of SMEs.<br /><br />The second chapter reviews the Credit Risk Database (CRD), a database of financial and non-financial information on Japanese SMEs. The chapter explains the mechanism of how SME data collected by prefectural and municipal credit guarantee corporations are integrated into the database. It also points to the importance of ensuring the independence of the database, which can be achieved by allowing the CRD Association (the administrator of the database) to secure revenue sources by offering consultation services to banks, such as the computation of default probabilities, for example.<br /><br />The establishment of a similar database of SME information in other parts of Asia would put Japanese SMEs and Japanese banks in a better position in launching and expanding operations in the region. Such a database would also help lower the default risks for SME lending in Asian countries. In this regard, cases related to Thailand and Indonesian are briefly discussed.<br /><br />The third chapter discusses ways of channeling more funds to start-ups and other relatively high-risk businesses. As the venture capital market in Japan is still not well developed, it is necessary to explore different channels to supply funds to SMEs and start-ups. This paper proposes the creation of regional investment and trust funds, which would be sold to the general public through regional banks and post offices. The funds are not on banks' balance sheets as they are not collected from depositors and any losses incurred by the funds are to be borne by investors. This is to say that banks and post offices are simply serving as sales agents. A few specific examples of such investment and trust funds are presented. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:11028&r=sea |
| By: | Pagliarani, Stefano; Pascucci, Andrea |
| Abstract: | We present a simplified approach to the analytical approximation of the transition density related to a general local volatility model. The methodology is sufficiently flexible to be extended to time-dependent coefficients, multi-dimensional stochastic volatility models, degenerate parabolic PDEs related to Asian options and also to include jumps. |
| Keywords: | option pricing; analytical approximation; local volatility |
| JEL: | G12 |
| Date: | 2011–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31107&r=sea |
| By: | Stelios Bekiros |
| Abstract: | This study explores the direction and nature of causal linkages among six currencies denoted relative to United States dollar (USD), namely Euro (EUR), Great Britain Pound (GBP), Japanese Yen (JPY), Swiss Frank (CHF), Australian Dollar (AUD) and Canadian Dollar (CAD). These are the most liquid and widely traded currency pairs in the world and make up about 90% of total Forex trading worldwide. The data covers the period 3/20/1987-11/14/2007, including the Asian crisis, the dot-com bubble and the period just before the outbreak of the US subprime crisis. The objective of the paper is to test for the existence of both linear and nonlinear causal relationships among these currency markets. The modified Baek-Brock test for nonlinear non-causality is applied on the currency return time series as well as the linear Granger test. Further to the classical pairwise analysis causality testing is conducted in a multivariate formulation, to correct for the effects of the other variables. A new stepwise multivariate filtering approach is implemented. To check if any of the observed causality is strictly nonlinear, the nonlinear causal relationships of VAR/VECM filtered residuals are also examined. Finally, the hypothesis of nonlinear non-causality is investigated after controlling for conditional heteroskedasticity in the data using GARCH-BEKK, CCC-GARCH and DCC-GARCH models. Significant nonlinear causal linkages persisted even after multivariate GARCH filtering. This indicates that if nonlinear effects are accounted for, neither FX market leads or lags the other consistently and currency returns may exhibit statistically significant higher-order moments and asymmetries. |
| Keywords: | nonparametric Granger causality; filtering; multivariate GARCH models; spillovers |
| JEL: | C14 C51 F31 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2011/22&r=sea |
| By: | Amiti, Mary; Cameron, Lisa |
| Abstract: | In this paper, we analyze the effect of reducing import tariffs on intermediate inputs and final goods on the wage skill premium within firms in Indonesia – a country with a high share of unskilled workers. We present a new finding that reducing input tariffs reduces the wage skill premium within firms that import their intermediate inputs. However, we do not find significant effects from reducing tariffs on final goods on the wage skill premium within firms. |
| Keywords: | import tariffs; intermediate inputs; wage inequality |
| JEL: | F10 F12 F13 F14 F16 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8382&r=sea |
| By: | Palma, J.G. |
| Abstract: | This paper examines the current global scene of within-nations distributional disparities. There are three main conclusions: first, that the statistical evidence for the ‘upwards’ side of the “Inverted-U” between inequality and income per capita seems to have vanished, as many lowand low-middle income countries now have a distribution of income similar to that of most middle-income countries (other than those of Latin America and Southern Africa). That is, half of Sub-Saharan Africa and many countries in Asian, including India, China and Vietnam, now have an income distribution similar to that found in North Africa, the Caribbean and the secondtier NICs. And this level is also similar to that of half of the first-tier NICs, the Mediterranean EU and the Anglophone OECD (excluding the US). As a result, about 80% of the world population now live in countries with a Gini around 40. So, the pre-globalisation statistical evidence for the hypothesis that posits that (for whatever reason) from a distributional point of view “things have to get worse before being able to get better” is rapidly drawing to a close. Second, that among middle-income countries it is only Latin America and Southern Africa that are living in an inequality limbo of their own. And third, that within an overall trend of rising inequality, there are two opposite distributional forces at work. One is ‘centrifugal’, and takes place at the two tails of the distribution—leading to an increased diversity across country in the shares appropriated by the top 10 percent and bottom forty percent. The other is ‘centripetal’, and takes place in the middle—leading to a remarkable uniformity across countries in the share of income going to the half of the population located between deciles 5 to 9. Therefore, globalisation is creating a situation where virtually all the within-nation distributional differences are the result of what the very rich and the poor are able to appropriate. In turn, it seems that regardless of the political settlement at work current distributional outcomes are characterised by half of the population (located in the middle and upper-middle of the distribution) acquiring strong ‘property rights’ over half of the national income. The other half, however, seems to be increasingly up for grabs between the very rich and the poor. And if what really matters in distributional terms is the income-share of the rich—because the rest ‘follows’ (middle classes able to defend their shares, and workers with ever more precarious jobs in ever more ‘flexible’ labour markets)—everybody attempting to understand the within-nations disparity of inequality (including myself) should always be reminded of this basic distributional fact following the example of Clinton’s campaign strategist: by sticking a note in our notice boards saying “It is the share of the rich, stupid”. |
| Keywords: | Inequality, poverty, income polarisation, Latin America, South Africa, US |
| JEL: | D31 D63 N30 O50 |
| Date: | 2011–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1111&r=sea |