Reassessing the evidence of an emerging Yen block in North and Southeast Asia

Using weekly observations on 9 Asian currencies from November 1976 to December
2003, we re-examine the evidence of an emerging yen block in North and Southeast Asia. In contrast to previous research that assumes instantaneous adjustment of exchange rates by the region’s Central Banks to variations in the world’s main global currencies, we use a dynamic
general-to-specific Newey-West estimation strategy that allows gradual adjustment and
calculation of both short and long run equilibrium responses. We find that there is no de facto yen block, but although the US dollar remains dominant throughout the region, the yen’s influence is rising amongst a subset of the currencies since the early 1990s.