TY  - JOUR
AU  - Ogawa,Eiji
AU  - Ito,Takatoshi
TI  - On the Desirability of a Regional Basket Currency Arrangement
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8002
PY  - 2000
Y2  - November 2000
UR  - http://www.nber.org/papers/w8002
L1  - http://www.nber.org/papers/w8002.pdf
N1  - Author contact info:
Eiji Ogawa
Graduate School of Commerce and Management
Hitotsubashi University
Kunitachi Tokyo 186-8601
JAPAN
Tel: 81-42-580-8859
Fax: 81-42-580-8747
E-Mail: cc00104@srv.cc.hit-u.ac.jp

Takatoshi Ito
Graduate School of Economics
University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
JAPAN
Tel: 81-3-5841-5608
Fax: 81-3-5841-5521
E-Mail: tito@e.u-tokyo.ac.jp
AB  - This paper considers a theoretical model to examine an optimal exchange rate regime for (Asian) emerging market economies that export goods to the U.S., Japan, and neighboring countries. The optimality of the exchange rate regime is defined as minimizing the fluctuation of trade balances, in the environment where the yen-dollar exchange rate fluctuates. Since the de facto dollar peg regime is blamed as one of the factors that caused the Asian currency crisis, the question of the optimal exchange rate regime is quite relevant in Asia. The novelty of this paper is to show how an emerging market economy's choice of the exchange rate regime (or weights in the basket) is dependent on the neighboring country's. The dollar weights in the currency baskets of the two countries are determined as a Nash equilibrium. In general, there are multiple equilibria, and a  coordination failure' may result.
ER  -