Special Issue focusing on Globalisation and Economic Integration in East Asia:
Japanese banks: Tail risk and capital buffers.
David E Allen, Akhmad R Kramadibrata, Robert J Powell and Abhay Kumar Singh
This paper applies quantile regression to a structural credit model to investigate the impact of extreme bank asset value fluctuations on capital adequacy and default probabilities (PD) of Japanese Banks. Quantile regression allows modelling of the extreme quantiles of a distribution which allows measurement of capital and PDs at the most extreme points of an economic downturn, when banks are most likely to fail. Outcomes are compared to traditional structural measures. We find highly significant variances in capital adequacy and default probabilities between quantiles, and show how these variances can assist banks and regulators in calculating capital buffers to sustain banks through volatile times.
Keywords: quantile regression, Japanese banks, probability of default, capital adequacy.
East Asian financial crisis revisited: What does a Copula tell?
Pei Fei, Albert K Tsui and Zhaoyong Zhang.
We construct a regime-switching model of copulas to capture observed asymmetric dependence in daily changes of exchange rates in five selected East Asian economies during the 1997 financial crisis era. In particular, we investigate the effects of the financial crisis on asymmetric dependence in exchange rates returns and assess the asymmetric relationships between five currencies, including the Singapore Dollar, Japanese Yen, South Korea Won, Thailand Baht and Indonesia Rupiah. Various time-varying copula models will also be applied to examine the possible structural breaks. The results confirm significant changes at the dependence level, tail behaviour and asymmetry structures between returns of all permuted pairs from the five currencies before and after the crisis. In comparison with other methods, it is found that the copular approach has more explanatory power than the existing ones in identifying structure breaks.
Keywords: financial crises, asymmetric dependence, copulas, East Asia
Common currency in East Asia: An analysis of currency convergence.
Lee K Lim
The recent global financial crisis of 2007-2009 and fears of a sovereign debt crisis in some European countries have fuelled the debates among economic analysts and policy makers on the future directions of monetary and exchange rate arrangements in the East Asian region. This paper applies both the cluster analysis and time series tests to determine whether increased trade and financial integration has led to currency convergence in the region over the period January 1990 to June 2010. The countries included in this study are the high-performing East Asian economies, namely China, Hong Kong, Japan, South Korea, Taiwan and the five founding ASEAN member countries. The Chinese yuan is found to be more suited than the Japanese yen as the anchor currency in East Asia.
Keywords: convergence, common currency, cluster analysis, exchange rates.
Currency appreciation in emerging Asia and world trade balances.
James Xiaohe Zhang
Despite the narrowing of global trade imbalance during the current economic recession, the improvement is not evenly distributed across different regions. While many economists blame the US trade deficit on the undervaluation of currencies in emerging Asia in general, and on the undervalued Chinese RMB in particular, no consensus has been reached as yet. Since a unilateral revaluation of the RMB has failed to reduce the trade deficit in the US, some commentators have recommended a joint appreciation of currencies in the emerging Asia as an instrument to restore trade balance between the US and Asia.
Using a multi-country macro-econometric model, this paper examines the likely consequence of the joint appreciation of the emerging Asian currencies on the world trade balances. According to the results of simulations, neither a drastic unilateral appreciation of the RMB, nor a joint appreciation of currencies in emerging Asia, would reduce the trade deficit in US significantly.
Keywords: China, RMB, Asia, exchange rate, revaluation, appreciation
A panel cointegration analysis of economic integration and tourism exports in ASEAN countries.
The economic cooperation between South East Asian countries has contributed remarkable mutual benefits to the overall economic growth in the Asian regions. In particular, Northern Asia such as China, Japan and South Korea have been actively boosting the economies in the ASEAN members through foreign direct investments and trade. Furthermore, strong business ties among these countries have encouraged more business persons to travel within the region for business and, possibly, for leisure purposes. This paper examines the existence of long-run relationships between economic integration and tourism exports for nine selected ASEAN States for the period 1996-2007. I employ tourist arrivals data as a proxy for tourism exports and trade ratios as a proxy for the economic integration. Using Johansen's Fisher panel cointegration test, the findings show that tourist arrivals and trade ratios are cointegrated in four out of nine Southeast Asia countries. Hence, there is weak evidence that economic integration has significant influences on tourism exports in ASEAN.
Keywords: economic integration, ASEAN, tourism demand, panel cointegration
Rural labour reallocation and productivity growth in China.
Fung Kwan, Yang Zhang and Shuaihe Zhuo
Dualism has long been a distinguished feature of many developing economies. This paper attempts to examine the possible contributions of structural change, measured by labour reallocation from agriculture to non-agriculture, to the growth of total factor productivity (TFP) in China during reform. Building upon the framework developed by Temple and WÖßmann (2006), we find that a three-sector model is theoretically more suitable to identify the role of labour reallocation to TFP growth in rural China.
Keywords: labour reallocation, TFP growth, wage differentials