Asymmetric cointegration relationship among Asian exchange rates

This study investigates the asymmetric cointegration relationship among the Japanese yen, the Korean won, and the Singapore dollar using an instrumental variable threshold cointegration test which allows asymmetric adjustment and avoids test statistics depending on nuisance parameters. This threshold cointegration approach clearly provides evidence for a cointegration relationship characterized by asymmetric adjustment toward the long-term equilibrium level. This finding indicates that the long-term equilibrium relationship among the Japanese yen, the Korean won and the Singapore dollar remains stable with asymmetric adjustment. The finding also shows there is a temporal delay in the reaction of the Korean won and the Singapore dollar to the Japanese yen change. Therefore, we conclude that, in the short-term, Korean won and Singapore dollar shocks are important to determine the response of the Japanese yen; the Singapore dollar shock is also important to determine the response of the Korean won; however, the Japanese yen shock is unimportant to determine the responses of the Singapore dollar and Korean won.

Shu-Chen ChangEmail: