Silviase/jgov_v1.4_full_ann huggingface dataset:
## 第4章 各室計画

●災害時に便器が使用できなくなることも考慮し，マンホールトイレの整備など複数の対策を組み合わせ，必要な数を確保することが重要。

△階段は，段差の寸法や手すりの設置、床面の素材などに配慮することが重要。

## 第 5 章 詳細設計

●内装木質化は，避難所となった場合の温熱環境の確保の観点からも望ましい。

◎高齢者，障害者を含む多様な地域住民の利用も踏まえ，二段手すりを整備することも有効。など

## 第6章 屋外計画

○屋外の避難路は，避難を踏まえた安全な幅，形状とし，また，滑りにくい仕上げとすることが重要。

○津波等災害時の緊急避難場所への避難路は，階段ではなくスロープとすることが望ましい。

○階段等の上り口は，滞留が生じないよう十分な面積を確保することが望ましい。

●プールは，災害時の防火用水，便所洗浄水等として利用できるよう計画することも有効。

◎緊急避難場所又は避難所である旨及び避難経路を示す案内図等を設置することが重要。など

## 第7章 構造設計

○屋上等に避難する場合には，当該建物が津波等による水圧等により，損壊等構造耐力上支障のある事態を生じない構造のものであることが重要。

◆天井や照明器具等の非構造部材について，落下・破損等の防止に十分配慮することが重要。など

## 第8章 設備設計

●避難所として必要な情報通信，電気，ガス，給排水等の機能を可能な限り保持できるよう，貯水槽，浄水機能を有するプール，自家発電設備，便所など，代替手段も含めた対策を講じることが重要。

●可搬式発電機等を用いて屋内照明を点灯させるために配線を工夫することが望ましい。また，省エネ型の照明器具は非常時に電力供給量が不足する場合にも有効。

○屋外の避難路については，停電時でも安全に避難できるよう照明等を計画することが望ましい。

●停電に備え，自家発電設備を整備することも有効。また，津波等の想定される災害に対して安全な場所に設置することが重要。

●太陽光発電設備を整備する場合には，自立運転機能及び蓄電機能を備えておくことが望ましい。

◎停電時にも対応できる校内放送設備を整備することが有効。

◎防災行政無線の受信装置を整備することが重要。また，相互通信が可能な防災行政無線設備等の整備が有効。津波等による孤立に備え，情報通信機器を持ち出せるようにしておくことが重要。

● 特設公衆電話等の避難所の情報通信環境を整備することが重要。

◎受水槽，高架水槽等は，災害時の利用も考慮して整備することが有効。

●特別支援学級関係室等は，冷暖房設備を設置することが重要。

など

## 第9章 防犯計画

◎避難経路に設ける出入口は，非常時には，夜間や休日であっても通行可能とすることが重要。

## 【特別支援学校特有の改正内容】

●停電時にも医療器具などに電気が使えるよう，安定的な電力供給が可能な自家発電設備等を整備することが重要。

●高齢者，障害者用の便器，手すり等の設備を設置した多機能トイレを計画することが重要。など
ESRI Discussion Paper Series No.3

Revised May 2001

# Risk Premiums and Exchange Rate Expectations: A Reassessment of the So-Called Dollar Peg Policies of Crisis East Asian Countries, 1994-97 $ ^{*} $

by

Shinji Takagi

Osaka University, Yale University and Economic and Social Research Institute

and

Taro Esaka

Osaka University

June 2001

*The authors thank Ryuzo Miyao, Yasuyuki Sawada, Hiroshi Shibuya and Kazuo Yokokawa for useful comments on an earlier draft. Needless to say, they alone assume responsibility for any remaining errors.

Economic and Social Research Institute

Cabinet Office

Tokyo, Japan
Keywords: East Asian currency crisis, exchange rate policy in East Asia, foreign exchange risk premium, unobserved components models

## Abstract:

We use an unobserved components model to extract the foreign exchange risk premium from the excess ex post returns of East Asian currency assets over US dollar assets and derive the implied expected future spot rates of East Asian currencies against the US dollar. Empirical results, obtained from monthly data on the crisis East Asian countries of Indonesia, Malaysia, Korea and Thailand for the period January 1994-June 1997, generally indicate that the risk premium was substantial and time-varying and that market participants consistently formed expectations of either appreciation or depreciation over the coming month. The presence of a risk premium means that East Asian currency assets and US dollar assets were imperfect substitutes, so that sterilization was effective. The expectations of short-term depreciation or appreciation suggest that the so-called dollar peg policies were not credible.
### 1. Introduction

This paper will use monthly interest rate data to assess the credibility of the so-called dollar peg policies of the four crisis East Asian countries (i.e., Indonesia, Korea, Malaysia and Thailand) during the 42-month period immediately preceding the onset of the East Asian currency crisis in July 1997. In particular, it will use an unobserved components model to extract foreign exchange risk premiums from interest rate differentials with respect to US dollar-denominated assets, in order to obtain the estimates of expected exchange rate depreciation or appreciation, hence the degree of credibility of the policies of maintaining relative stability against the US dollar. Because the presence of an exchange rate premium, if any, suggests that East Asian currency-denominated assets and US dollar-denominated assets are imperfect substitutes, moreover, this exercise will also help assess the effectiveness of sterilization policies pursued in these countries in controlling the growth of monetary aggregate under pegged exchange rate regimes (Takagi and Esaka 2001). It turns out that, during the period under consideration, (1) there was evidence of time-varying exchange risk premiums between the East Asian currencies and the US dollar (suggesting that East Asian currency assets and US dollar assets were imperfect substitutes, hence sterilization was effective) and that (2) markets apparently displayed systematic expectations of exchange rate depreciation or appreciation.
appreciation (suggesting that the so-called dollar peg policies were far from being credible).

It is well known that, from the latter part of the 1980s into early 1997, the emerging market economies of East Asia received a large volume of capital inflows (Calvo, Leiderman and Reinhart, 1996; Chuhan, Claessens and Mamingi, 1998; and Montiel, 1998). In fact, the inflows were massive indeed: in terms of GDP, the volume of cumulative inflows from 1988 to 1995, for example, amounted to 51.5 percent in Thailand, 45.8 percent in Malaysia, 9.3 percent in Korea and 8.3 percent in Indonesia (Takagi and Esaka 2001). While responsible for this surge of capital inflows were both internal (or "pull") and external (or "push") factors of various types, the substantial interest rate differentials that existed in favor of assets denominated in East Asian currencies over those denominated in major industrial country currencies were undoubtedly an important contributing factor. For example, the average interest rate differentials favoring short-term money market instruments denominated in East Asian currencies over those denominated in the US dollar during January 1994-June 1997 were over 8 percent for Indonesia, about 8 percent for Korea about one percent for Malaysia and over 6 percent for Thailand (top panel, Table 1; and Figure 1). $ ^{1} $ Adjusted for actual exchange rate changes, the average excess
returns over US dollar-denominated instruments remained substantial, amounting to 2.5-6.1 percent per year (bottom panel, Table 1).

In this connection, it is important to remember that these large positive excess returns

on East Asian currency assets were observed against the background of the so-called dollar peg

policies, the exchange rate policies of maintaining relative stability against the US dollar (Ito,

Ogawa and Sasaki 1998; Takagi 1999; and Esaka 2000). The presence of interest rate

differentials favoring East Asian currency assets in this environment means that there were

risk premiums, expected depreciation, or some combination of both. Equivalently, the presence

of positive ex post excess returns means that there were risk premiums, unexpected appreciation

or some combination of both on the part of East Asian currency assets. If the exchange rate

policies had been credible in the sense that market participants expected the US dollar exchange

rates to remain stable, one would have observed the expected rate of currency depreciation to be

small. Then, most of the interest rate differentials would be explained by foreign exchange risk

premiums. On the other hand, lack of credibility in the dollar peg policies would have meant

that an important component of the interest rate differentials would reflect expected exchange

rate change. An important task, therefore, is to decompose the observed interest rate

differentials into risk premiums and expected rates of depreciation, which are both
unobservable.

In attempting to make the decomposition, we will use the relatively simple statistical procedure called an unobserved components model, as previously employed by Wolff (1987, 2000a, 2000b), Nijman, Palm and Wolff (1993), and Cheung (1993). An important advantage of this approach is that it absolves us from making strong assumptions about the fundamental determinants of the risk premium, as would be required in the alternative regression-based approach. At a minimum, the regression-based approach would require the availability of consumption and other macroeconomic data and might even require us to specify the explicit form of utility functions (see Engel 1996 for a survey of empirical issues related to foreign exchange risk premiums). In contrast, the unobserved components approach will only require the assumption of rational expectations and the observation of the time-series property of the sum of unobservable components, the risk premium and a prediction error in this case (see Section 2 for details). While this approach may or may not be the most reliable way of estimating the risk premium, it may well be the only feasible method for our purpose, given the limited availability of high-frequency data on macroeconomic variables and the need to restrict ourselves to a relatively short period of time immediately preceding the East Asian currency crisis, for which testing for policy credibility would be a relevant exercise.
The paper is organized as follows. Section 2 explains the basic methodology of the

unobserved components model in extracting the unobservable foreign exchange risk premium

from the observable ex post excess return. Sections 3 and 4 report the results of applying the

unobserved components model to East Asian data for 1994-97 and discuss their implications. In

particular, Section 3 presents the estimates of risk premiums, while Section 4 discusses the

credibility of the so-called dollar peg policies of the East Asian countries by estimating the

expected future spot rates. Section 5 provides a summary and concluding remarks. Finally,

Appendix I summarizes the source and nature of the data, and Appendix II provides an outline

of the Kalman filter algorithm for the unobserved components model.

### 2. An Unobserved Components Model of the Foreign Exchange Risk Premium

(1) Decomposing the Excess Return

For a given East Asian currency (i.e., the Indonesian rupiah, the Korean won, the

Malaysian ringgit, or the Thai baht), we begin by decomposing the forward exchange rate into

two components, the expected future spot rate and the risk premium, as follows:

$$ f(t,t+1)=E_{t}\left(s(t+1)\right)+\mathsf{\rho}\left(t\right), $$
where $ f(t, t + 1) $ is the natural logarithm of the one period ahead forward rate at time t;

$ E_{t}(s(t+1)) $ is the rational or efficient forecast of the natural logarithm of the spot rate at time

t+1, based on all information available at time t; and ρ(t) is the risk premium. Throughout the

paper, the exchange rate is defined as the price of the foreign currency (i.e., the US dollar) in

terms of the domestic (i.e., East Asian) currency in question, such that an increase in f or s

denotes a depreciation against the US dollar.

Subtracting $ s(t + 1) $ , the realized future spot rate, from both sides of equation (1) and

defining the forecast error at time $ t+1 $ as $ v(t+1)=E_{t}s(t+1)-s(t+1) $ , we obtain:

$$ f(t,t+1)-s(t+1)=\mathsf{\rho}(t)+\nu(t+1), $$

where $ v(t) $ , the forecast error, is serially uncorrelated with zero mean under the assumption of

rational expectations. Assuming covered interest parity, equation (2) can equivalently be

written as:

$$ ER(t)=i(t)-i^{*}(t)-\left(s(t+1)-s(t)\right)=\mathsf{\rho}(t)+\nu(t+1), $$
where i is the domestic (or East Asian) currency interest rate and $ i^{*} $ is the foreign currency (or

US dollar) interest rate. Equation (3) shows that the excess return $ (ER(t)) $ consists of a risk premium and a white noise error, or a signal and noise. We prefer the form of equation (3) to the form of equation (2) because of the simple fact that data on forward exchange rates are not as readily available as data on money market interest rates for the East Asian countries in our sample. Our task is to extract the (unobservable) risk premium from the (observable) excess return. $ ^{2} $

## (2) Identifying the Foreign Exchange Risk Premium

Now, let us first specify the motion of the risk premium so as to isolate it from its noisy environment. To do so, we investigate the time-series property of the excess return $ (ER(t)) $ by using the Augmented Dickey-Fuller (ADF) test. We can then use the observed motion of the excess return to derive information about the time-series property of the underlying risk premium by resorting to a summation theorem for moving-average processes (Wolff 1987),
inasmuch as the excess return is made up of the risk premium and a white noise error. Based on

the ADF test statistics for excess returns (Table 2), we find that the excess returns were

integrated of order one, i.e., I(1), suggesting that the risk premium ( $ \rho(t) $ ) was also

non-stationary (I(1)), given that $ v(t) $ is a white noise error. Hence, we may characterize the risk premium as following a random walk process. $ ^{3} $

The resulting unobserved components model for the risk premium can be specified as the

following system of equations:

$$ ER(t)=i(t)-i^{*}(t)-(s(t+1)-s(t))=\mathsf{\rho}(t)+\nu(t+1), $$

$$ \mathsf{\rho}(t)=\mathsf{\rho}(t-1)+\mathsf{\varepsilon}(t), $$

$$ v(t)\sim i.i.d.N(0,R), $$

$$ \varepsilon(t)\sim i.i.d.N(0,Q), $$

$ v(t) $ and $ \varepsilon(t) $ are independent for all t.
This model assumes that $ \rho(t) $ follows a random walk process, such that changes in the

parameters are randomly driven by the disturbance $ \varepsilon(t) $ . The profile of $ \rho(t) $ , therefore, evolves

over time according to equation (5).

In state-space form, equation (4) is known as a measurement equation, which relates the

observed variable to the unobserved component $ \rho(t) $ , while equation (5) is a transition equation,

which describes the evolution of the unobserved component over time. This model can be

estimated by the maximum likelihood method through the application of the Kalman filter (e.g.,

Harvey 1981, 1989; Hamilton 1994), which recursively updates the estimate of $ \rho(t) $ by utilizing

the new information in $ ER(t) $ . In this sense, the Kalman filter technique can be viewed as a

Bayesian method. $ ^{4} $ An outline of the Kalman filter algorithm for this unobserved components

model is presented in Appendix II.

### 3. Estimating the Foreign Exchange Risk Premium

(1) The Overall Performance of the Model
The results of applying the unobserved components model, given by equations (4)-(8), to

monthly East Asian data for the period January 1994-June 1997 are summarized in Table 3. To begin with, the overall reasonableness of the fitted model may be examined by checking to see how much of the risk premium is captured. If the model has succeeded in adequately capturing the risk premium, the error terms should be serially uncorrelated. This can be checked by the Box-Pierce portmanteau Q-statistics (calculated from the residuals), which indicate that they are indeed serially uncorrelated in all four cases. We thus conclude that the unobserved components model was successful in capturing the essence of the foreign exchange risk premium in all four East Asian currencies.

(2) Mean Foreign Exchange Risk Premiums

Next, we note that, for all currencies, the estimated mean premium was positive and

significant at the one percent level, ranging from 0.0028 (for the Indonesian rupiah) to 0.0050

(for the Thai baht). These are large in magnitude because the estimated risk premium of 0.0050

(for the Thai baht), for example, means roughly 0.5 percent per month or 6 percent per year. $ ^{5} $

Likewise, the risk premium was roughly 3.4 percent for the Indonesian rupiah, 5 percent for the
Korean won, and 3.8 percent for the Malaysian ringgit. Evidence thus seems to indicate that the interest differentials favoring East Asian currency assets during 1994-97 included substantial risk premium components and that substitutability between East Asian currency assets and US dollar assets were highly imperfect.

This evidence of imperfect asset substitutability is consistent with the evidence of weak causal or structural relationship between an increase in foreign exchange reserves and the growth of monetary aggregates, as documented by Takagi and Esaka (2001) for these and other East Asian countries during 1987-97. Takagi and Esaka (2001) interpreted this evidence to conjecture that the series of tight macroeconomic policy measures taken in these countries to counter the expansionary impact of the massive reserve inflows --- collectively called sterilization --- were effective in limiting the growth of narrow and broad money. The evidence of imperfect asset substitutability, as indicated by the presence of a risk premium, certainly supports the conjectured efficacy of sterilization in the East Asian context. In turn, the apparent efficacy of sterilization may have worked to promote additional capital inflows by raising the level of domestic interest rates, to the extent that international investors willingly took open speculative positions on the risk premium through what became known as “carry trades”.

reflects a large yet unrealized change in the exchange rate. See, for example, Evans and Lewis (1995).
The estimated variances of the risk premium and the forecast error may also be of some interest (Table 3). In the case of the Korean won and the Malaysian ringgit, the variance of the risk premium was larger than the variance of the forecast error, whereas the opposite is true for the Indonesian rupiah and the Thai baht. This means that the variation of the risk premium accounted for more than half the variation of the excess return for the Korean won and the Malaysian ringgit, while the variation of the forecast error accounted for more than half the variation of the excess return for the Indonesian rupiah and the Thai baht. This may be a simple reflection of the fact that the Indonesian rupiah (with a crawling peg to the US dollar) and the Thai baht (with a peg to a currency basket) fluctuated more than the other two currencies against the US dollar (Takagi 1999).

## (3) The Time Profiles of Risk Premiums

Depicting the time profiles of the estimated risk premiums for April 1994-May 1997, we find that they were time-varying with some degree of persistence (Figure 2). The persistent yet time-varying nature of the estimated risk premium is consistent with a wide range of studies finding similar evidence for major industrial country currencies (Wolff 1987, 2000a; Cheung 1993; Nijman, Palm and Wolff 1993). Several observations are in order. First, the estimated risk premium did vary over time throughout the sample period and took on both positive and negative impacts.
negative values, as previously demonstrated for industrial country data (see Engel 1996). The

risk premium varied between -0.4 and 1.2 percent per month for the Indonesian rupiah, between

-1.5 and 2.3 percent for the Korean won, between -1.2 and 2.6 percent for the Malay sian ringgit,

and between -0.3 and 2.8 percent for the Thai baht.

Second, unlike the industrial country results (in which the risk premium swings

between positive and negative values), the risk premium for the East Asian currencies was for

the most part positive, indicating that East Asian currency assets were generally considered to

be riskier than US dollar assets. This, however, should not minimize the fact that the East

Asian assets were sometimes considered to be safer as in the case of the Indonesian rupiah in

early 1997, the Korean won in the second quarter and the latter part of 1996, and the Malaysian

ringgit during the first half of 1995. At least on the surface, it appears that the negative risk

premiums were associated with the presence of some appreciation pressure against the

background of general depreciation (e.g., the rupiah in early 1997, the won in 1996, and the

ringgit from mid-1995 to late 1995). $ ^{6} $
Third, the estimated risk premium was considerably more volatile than the associated interest rate differential (c.f., Figure 1). This means that the covariance of the expected rate of depreciation and the risk premium was negative, the result consistent with the evidence well known in industrial country data (Engel 1996). Fourth, the premium of the Thai baht rose sharply (from 0 to 2.8 percent per month) during the two months preceding the onset of the currency crisis in July 1997, along with the sharply rising interest rate differential. This behavior of the risk premium indicates that the perceived risk of Thai baht assets rose sharply during this period in the minds of market participants. In contrast, the risk premium did not rise during this period in the case of the Indonesian rupiah and the Malaysian ringgit.

### 4. On the Credibility of the So-called Dollar Peg Policies

(1) Monetary, Exchange Rate and Other Policy Developments

Given the estimated risk premium, we can assess the credibility of the so-called dollar peg policies of the East Asian countries by obtaining the implied expected future spot rate. This can be done by making use of the fact that the interest rate differential is equal to the sum of the

of the credit rating of Malaysia’s long-term and short-term external debt in late 1994 (see EIU, various issues).
risk premium and the expected rate of depreciation. Before proceeding further, however, it may

be helpful first to review the salient features of the monetary, exchange rate and other policy

developments, which might have affected the market participants' exchange rate expectations,

against the overall environment of the continued tight monetary policies designed to contain the

expansionary impact of the reserve inflows. $ ^{7} $

## (i) Indonesia

Throughout the period, the Indonesian authorities maintained a tight monetary stance

in order to contain inflationary pressure (with year-on-year consumer price inflation of 7.5-10.5

percent from early 1994 through mid-1996) against the recurrent fear of overheating. The

measures included increases in the discount rate (e.g., January 1995), increases in reserve

requirements (e.g., February 1996; April 1997), tightening of direct credit controls (e.g.,

1995/1996). However, when the inflationary pressure appeared contained towards the end of the

period (when the year-on-year rate of inflation declined to around 5 percent), they somewhat

eased monetary policy as in late 1996 and again in early 1997 in order to encourage growth and

to restrain the upward pressure on the rupiah, respectively. Given the higher rate of inflation

relative to its most trading partners, the exchange rate was consistently adjusted downward to
maintain the real effective exchange rate. The exchange rate depreciated from 2143 rupiah per US dollar in early 1994 to 2450 in mid-1997 (Figure 2a). There was temporary depreciating pressure on the rupiah from time to time, as in January 1995 (in connection with the Mexican crisis); there was also temporary upward pressure, as in mid-1996 and in early 1997. In June and September 1996, the authorities widened the rupiah's fluctuating band against the US dollar, in order to increase the foreign exchange risk faced by foreign currency traders.

(ii) Korea

Throughout the period, the Korean authorities were faced with the dilemma of

containing inflation and maintaining exchange rate stability against the US dollar, against the background of large capital inflows. Inflation was in the range of 3.6-6.9 percent, moderate by emerging market standards but high relative to the industrial country norm. The authorities generally maintained a tight monetary stance by raising interest rates; this stance was supplemented by some fiscal tightening. However, from late 1996, the monetary stance turned more accommodating, with interest rates beginning to decline. Although the won remained relatively stable against the US dollar (fluctuating between 758 and 820) through mid-1996, it began to depreciate sharply in late 1996, reaching almost 900 in the first quarter of 1997 (Figure 3b). This movement of the won was in part influenced by the downward movement of the yen.