How Did the Dollar Peg Fail in Asia?

Takatoshi Ito, Eiji Ogawa, Yuri Nagataki Sasaki

NBER Working Paper No. 6729 (Also Reprint No. r2237)
Issued in August 1999
NBER Program(s):International Finance and Macroeconomics

In this paper we have constructed a theoretical model in which Asian firms maximize their profit, competing with Japanese and US firms in their markets. The duopoly model is used to determine export prices and volumes in response to the exchange rate fluctuations vis-…-vis the Japanese yen and the US dollar. Then, the optimal basket weight to minimize the fluctuation of the growth rate of trade balance is derived. These are the novel features of our model. The export price equation and export volume equation are estimated for several Asian countries for the sample period of 1981 to 1996. Results are generally reasonable. The optimal currency weights for the yen and the US dollars are derived and compared with actual weights that had been adopted before the currency crisis of 1997. For all the countries in the sample, it is shown that the optimal weight of the yen is significantly higher than the actual weight.

download in pdf format
   (1803 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6729

Published: Ito, Takatoshi & Ogawa, Eiji & Sasaki, Yuri Nagataki, 1998. "How Did the Dollar Peg Fail in Asia?," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 256-304, December. citation courtesy of

Users who downloaded this paper also downloaded* these:
Ogawa and Ito w8002 On the Desirability of a Regional Basket Currency Arrangement
Frankel and Wei Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies
Frankel w10032 Experience of and Lessons from Exchange Rate Regime in Emerging Economies
Ogawa and Shimizu w12198 Stabilization of Effective Exchange Rates Under Common Currency Basket Systems
Frankel w11274 On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us