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Exchange Rate Pegs and Foreign Exchange Exposure in East and South East Asia - page 14 / 33

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arrangement. This results in the dates given in the notes to Table 4. The table itself

summarizes the findings from estimating Equation 3.

The first column shows the fraction of firms that show significant exposure to the

dollar. The pegs are imperfect enough that there is sufficient variation even in the dollar

exchange rate for exposure to be measurable in these countries.16 As shown in the first

column, far more firms show statistically significant exposure to the dollar with a peg than

without one in Malaysia, the Philippines, and Thailand.

The third column gives the fraction of firms that show significant exposure to the

yen. As shown, there is apparently even greater exposure to the yen. Widespread yen

exposure occurs in all of the countries under their pegs. Under a peg, more than half the

firms in Indonesia, Korea, Malaysia and the Philippines, and nearly a third of the firms in

Taiwan and Thailand, show significant exposure to fluctuations in the yen. Without a peg,

only Taiwanese firms exhibit a notable yen exposure. With or without a peg, there is

apparently less exposure against the euro and the pound, shown in columns 2 and 4.

Overall, the table illustrates that the extent of foreign exchange exposure has been much

more widespread with a peg than without one.

The next table helps us explore whether this exposure reflects only the single brief

period of the Asian Crisis. Table 5 gives the result from re-estimating the equation

excluding the summer of 1997. There are some notable differences for Malaysia and

Thailand under a peg. Excluding the Asian Crisis period, most Malaysian firms appear to

be exposed only to the yen, not to the dollar, as they where when the crisis period was

16 As can be seen from Appendix Figure 1, all of the pegs except the post-1998 peg of Malaysia (its second peg) and the long-lasting peg of Hong Kong show variation. In the case of Hong Kong, we only estimate the exposure to the non-pegged currencies.

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