In this paper, the ratio model, a simple currency valuation model proposed by Zhang (2012, International Research Journal of Finance and Economics, issue 97, pp. 55–59), is revisited. We use both the ratio and purchasing power parity (PPP) models to value the bilateral real exchange rates (RERs) of five Asian industrial countries and areas, namely, Japan, Korea, Taiwan, Hong Kong, and Singapore, against the United States. In the early 1950s to 2009, the RER misalignments of four new industrial countries and areas from the ratio model converged, but those from the PPP model did not, implying the competitiveness of the ratio model against the PPP model both in currency valuation and as an RER anchor.
5/4/2020 2:39:27 PM +00:00