Exchange rate overshooting in East Asian countries (Thailand, Malaysia, Philippines, Indonesia, Korea)

This dissertation investigates the exchange rate overshooting phenomenon for five East Asian countries---Thailand, Malaysia, Philippines, Indonesia and Korea---for the period 1987--2000 by using the Autoregressive Distributed Lag (ARDL) regression method introduced by Pesaran and Shin (1998). The sticky-price monetary model introduced by Dornbusch (1976) is also utilized in this paper. It asserts that an increase in money supply causes currency to depreciate in the long run with some short run rigidity caused by price stickiness. The empirical results support the exchange rate overshooting hypothesis for all five countries and they are in line with the findings of Bahmani-Oskooee and Kara (2000). Furthermore, the CUSUMSQ statistic that measures the stability of parameters of the model over time indicates that the short-run and long-run elasticity of variables for Thailand, Malaysia, Philippines, Indonesia and Korea are unstable, with or without dummy variables as an influence on the East Asian financial crisis.