Currency linkages in the Asia-Pacific region: A study on exchange market pressure

Abstract

This thesis applies the exchange market pressure (EMP) methodology to examine the interrelationship among eleven Asia Pacific currencies. Three factors are taken into account to construct the EMP index: changes of exchange rate, changes of interest differentials and changes of foreign reserves.The empirical analysis supports the hypotheses that: (1) economies which are economically and/or geographically close to each other tend to face similar exchange market pressures; (2) there exists a structural change in the linkages on the currencies before and after the Asian Financial Crisis; and (3) the interrelationships of currency linkages are not symmetric. Moreover, the linkages among the currencies have increased after the crisis. In addition, it appears that there has been no relatively influential currency in the Asia Pacific.