Currency and political choice : analytical political economy of exchange rate policy in East Asia

Meng, Chih-Cheng
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How do catch-up East Asian countries cultivate their exchange rate (ER) policies in a different trajectory than advanced economies often cited in current literature? What are the dynamics and results (pros and cons) of choosing a particular ER policy, and what influence does it have on the progress of developmental states? How do domestic and international politics explain the convergences and variances of ER policy decisions in East Asia? The decisions of ER policy are by all means political choices. ERs influence the prices of daily exchanged goods, and thereby determine resource allocation within and across national borders. Therefore, any internal political actor, including a government, interest group, foreign party or constituent exerts discretionary power to manipulate an ER to satisfy its own interests. Externally, the size of foreign trade and the status of international monetary accounts closely depend on the valuation and volatility of ER. Thus for the transitional polities and the trade-driving economies in East Asia, the analysis of ER politics not only helps to clarify the complex mechanisms of ER influences combined with various interests and institutional settings, but also to advance the political study of globalization. My dissertation proposes an integrated framework to contend that the domestic distributional politics and economic determinants, as well as the international monetary relations, and regional market force and adaptive policy diffusion are crucial factors that influence and interact with ER policy in East Asia. This theoretical framework explains how an ER policy decision is compromised between domestically generated preferences and apparently intense international interactions. Likewise, this dissertation provides a vigorous empirical specification toward the spatiotemporal differences of ER policy in East Asia. The application of the structural vector autoregression (SVAR) model properly specifies the theoretical dynamics across variables in the East Asian panel data compiled from 1980 to 2004. Furthermore, by using the alternative Bayesian estimation, SVAR successfully demonstrates the "spinning stories" that distinguish the variances with regard to country-specific development under the asymmetrically international and interdependently regional monetary system. The empirical findings verify that my theoretical variables interact significantly with ER policy decisions in East Asia. The statistics also demonstrate that most East Asian countries tend to strategically withstand influences from the various waves of capital liberalization and keep their currencies at low values. In a general testing, however, domestic pursuits for preferred interests gradually yield to the persistent influences of international and regional forces on ER policy making in East Asia.