Exchange rate regime and equilibrium exchange rate of East Asian countries.

Summary Our thesis addresses the exchange rate regime choices of East Asian countries in the era of free international capital flows. We recommend an intermediate regime with relatively low volatility and stability around the equilibrium exchange rate level and a regional cooperative solution. We estimate the equilibrium exchange rate of the currencies of Japan, China, and Korea over the period 1980-2000 using a multinational model describing foreign trade with the United States, Europe, and the rest of the world. For the other East Asian countries (Taiwan, Thai͏̈lande, Indonesia, Philippines, Malaysia) a simplified model is used for each of them and articulated with the results of the multinational model. The "Fundamental Equilibrium Exchange Rate" developed by Williamson serves as our theoretical framework of reference. The overvaluation of the yen and the strong undervaluation of the yuan are to be remembered after the 1997-98 crisis.