Silviase/jgov_v1.4_full_ann huggingface dataset:
Table A.1.7 COINTEGRATION TEST

JAPAN FIRST PERIOD

COUNTRY	PERIOD
JAPAN	1962Q1-1973Q1

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

M2	CONSTANT	Y	R	P	R²	D-W	ADF	95% CRITICAL VALUE
6.9795	0.48991	-0.16357	2.0474	0.997	0.768	ADF (1)
-4.843	-4.3614
ADF (2)
-3.5523	-4.3681
ADF (3)
-2.2693	-4.3749
ADF (4)
-1.9778	-4.3821

Note: Y=Real GNP, R=interest rate variable P=GNP Deflator

$ R^{2} $ =adjusted $ R^{2} $ , D-W=Dorbin-Watson statistic ADF=Augmented Dickey-Fuller test statistic.

Table A.1.8 COINTEGRATION TEST

JAPAN SECOND PERIOD

COUNTRY	PERIOD
JAPAN	1973Q2-1990Q1

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

M2	CONSTANT	Y	R	P	R²	D-W	ADF	95% CRITICAL VALUE
-9.4449	1.7319	-0.026926	0.65688	0.999	0.806	ADF (1)
-2.7044	-4.2678
ADF (2)
-2.5433	-4.2704
ADF (3)
-1.5784	-4.2732
ADF (4)
-1.9735	-4.276
-9.8959	1.7637	0.65669	0.998	0.65	ADF	95% CRITICAL VALUE
ADF (1)
-2.474	-3.8725
ADF (2)
-2.3777	-3.8746
ADF (3)
-1.9739	-3.8767
ADF (4)
-2.5081	-3.8769
-16.2116	2.2612	-0.026622	0.987	0.157	ADF	95% CRITICAL VALUE
ADF (1)
-4.3064	-3.8725
ADF (2)
-4.3554	-3.8746
ADF (3)
-1.9857	-3.8767
ADF (4)
-1.6319	-3.8789

See Table A.1.7
KOREA FIRST PERIOD

COUNTRY	PERIOD
KOREA	1973Q3-1979Q4

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

M2	CONSTANT	Y	R	P	R²	D-W	ADF	95% CRITICAL VALUE
-3.8563	1.4282	-0.073225	0.76171	0.992	1.09	ADF (1)
-2.5415	-4.5852
ADF (2)
-1.4121	-4.6079
ADF (3)
-1.7723	-4.633
ADF (4)
-1.5185	-4.6606
-4.4976	1.4692	0.72872	0.992	1.145	ADF	95% CRITICAL VALUE
ADF (1)
-2.7866	-4.1142
ADF (2)
-1.5712	-4.1314
ADF (3)
-1.8176	-4.1502
ADF (4)
-1.576	-4.171
-19.2079	2.8204	0.44901	0.982	1.617	ADF	95% CRITICAL VALUE
ADF (1)
-4.1618	-4.1142
ADF (2)
-4.4217	-4.1314
ADF (3)
-3.6524	-4.1502
ADF (4)
-3.1706	-4.171

See Table A.1.7

Table A.1.10 COINTEGRATION TEST

KOREA SECOND PERIOD

COUNTRY	PERIOD
KOREA	1980Q1-1990Q1

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

M2	CONSTANT	Y	R	P	R²	D-W	ADF	95% CRITICAL VALUE
0.93606	0.94749	0.033615	1.3716	0.997	0.723	ADF (1)
-2.9732	-4.3897
ADF (2)
-2.7762	-4.3977
ADF (3)
-2.676	-4.4062
ADF (4)
-2.3435	-4.4151
1.0124	0.93076	1.4507	0.996	0.724	ADF	95% CRITICAL VALUE
ADF (1)
-3.1441	-3.9659
ADF (2)
-2.9425	-3.972
ADF (3)
-2.9481	-3.9784
ADF (4)
-2.4973	-3.9852
-3.7036	1.4762	-0.26701	0.98	0.5	ADF	95% CRITICAL VALUE
ADF (1)
-2.2258	-3.9659
ADF (2)
-2.45	-3.972
ADF (3)
-1.0924	-3.9784
ADF (4)
-2.1769	-3.9852

See Table A.1.7
INDONESIA FIRST PERIOD

COUNTRY	PERIOD
INDONESIA	1977Q1-1983Q4

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

M2	CONSTANT	Y	R	P	R²	D-W	ADF	95% CRITICAL VALUE
-13.0729	2.7032	-0.14387	0.62789	0.985	0.39	ADF (1)
-2.0301	-4.5452
ADF (2)
-1.7906	-4.5643
ADF (3)
-1.5837	-4.5852
ADF (4)
-0.75486	-4.6079
-15.2148	2.9643	0.41037	0.982	0.197	ADF	95% CRITICAL VALUE
ADF (1)
-1.5771	-4.084
ADF (2)
-0.9094	-4.0984
ADF (3)
-0.58566	-4.1142
ADF (4)
-0.41487	-4.1314
-24.4099	4.222	-0.09334	0.982	0.336	ADF	95% CRITICAL VALUE
ADF (1)
-2.4034	-4.084
ADF (2)
-2.1387	-4.0984
ADF (3)
-1.4229	-4.1142
ADF (4)
-0.55183	-4.1314

See Table A.1.7

Table A.1.12 COINTEGRATION TEST

INDONESIA SECOND PERIOD

COUNTRY	PERIOD
INDONESIA	1983Q1-1990Q1

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

M2	CONSTANT	Y	R	P	R²	D-W	ADF	95% CRITICAL VALUE
-18.4463	2.8481	-0.050234	0.89132	0.968	1.35	ADF (1)
-2.1419	-4.5113
ADF (2)
-1.9983	-4.5452
ADF (3)
-2.8505	-4.5643
ADF (4)
-2.789	-4.5852
-18.2259	2.8123	0.92782	0.968	1.3034	ADF	95% CRITICAL VALUE
ADF (1)
-1.9403	-4.0706
ADF (2)
-1.9241	-4.084
ADF (3)
-2.697	-4.0984
ADF (4)
-2.5384	-4.1142
-30.2225	4.043	-0.06028	0.965	1.54	ADF	95% CRITICAL VALUE
ADF (1)
-2.3797	-4.0706
ADF (2)
-2.338	-4.084
ADF (3)
-2.7402	-4.0984
ADF (4)
-3.3088	-4.1142

See Table A.1.7
FIRST PERIOD

COUNTRY	PERIOD
JAPAN	1962Q1-1973Q1

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

$ \Delta M^{2} $	CONSTANT	EC1	$ \Delta M(-1) $	$ \Delta Y(-1) $	$ \overline{R}^{2} $	D-W
0.021517	-0.047427	0.61589	-0.2135	0.445	2.25
(3.5252)	(-0.85624)	(5.2058)	(-2.0199)

Note: EC1=Lagged Error Correction term, $ \overline{R}^{2} $ =adjusted $ R^{2} $ , D-W=Dorbin-Watson statistic. Figures in the bracket are t values.

SECOND PERIOD

COUNTRY	PERIOD
JAPAN	1973Q1-1990Q1

DEPENDENT VARIABLE	INDEPENDENT VARIABLE

$ \Delta M2 $	CONSTANT	EC1	$ \Delta Y(-1) $	$ \overline{R}^{2} $	D-W
0.024425	-0.060107	-0.018906	0.112	1.75
(27.1518)	(-2.7713)	(-2.4584)

See Table A.1.13.
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### Appendix 2. Foreign exchange rate policies of Asian Countries - Japan, Korea, Indonesia, and the Philippines -

#### A.2.1 Introduction

In terms of economic policy, exchange rate policy is the most important to external balance. In this section, we will analyze the foreign exchange rate policies of four Asian countries in light of the macroeconomic policy. The main questions concerning exchange rate policy are the following. What are the targets of exchange rate policy? Does the exchange rate policy focused on adjusting balance of payments? What were the results of the exchange rate policy? Was the exchange rate policy effective at adjusting the problems of the economy? Is there any relationship between the target and result of exchange rate policy and overall economic performance?

The movement and the change of the exchange rate system has a large impact on economic performance; one of the important effects of the exchange rate is on exports and imports, which will effect the balance of payments, economic growth and inflation. Another important element is volume of capital flow which the change affects through domestic interest rates. To comparatively study targets of the exchange rate policies of the four Asian countries, we have applied simple reaction (response) function analysis, as we did in the analysis of monetary policy in the main text. We also applied the Vector Auto-regression Model (VAR) to examine the relationships between the exchange rate and other macroeconomic variables.

The methodology of reaction function analysis is similar to those we applied in the analysis of monetary policy. When we apply this method to explaining fluctuations of the exchange rate, we adopted strong assumptions. Here, as in the analysis of the monetary policy, the exchange rate is considered to be a policy instrument fully controllable by the authorities, which in some cases is not a realistic assumption. Particularly in situations where a completely flexible exchange rate system is adopted, it is difficult for authorities to control foreign exchange rates. On the other hand, in the VAR analysis, variables are assumed as endogenous and the degree of independence is measured by analysis from Granger's causality.

In this study, most of the data were obtained from the IFS compact disk data base. The data obtained from other sources are, real GNP of Korea, real GDP and money market interest rate of Indonesia. $ ^{1} $ Industrial production index, real GNP, and
prices are seasonally adjusted by the TSP econometric package. The real GNP of Korea and real GDP of Indonesia were seasonally adjusted by Economic Planning Agency's SIGMA Econometric Package.

#### A.2.2 Exchange Rate System of Four Asian Countries

In this section, we will briefly explain the developments of the exchange rate policies and foreign exchange rate systems of the four countries which we will study.

###### A.2.2.1. Japan

Since the Yen rate was fixed at 360 Yen per US dollar in 1949 under the stabilization program called the “Dodge Line”, it remained fixed until 1971. $ ^{2} $ In 1971, Japan faced the “Nixon shock” and an abrupt appreciation of the exchange rate. Following the efforts to restore a fixed exchange rate system by the Smithsonian Accord, major industrial countries adopted floating exchange rate systems, as did Japan. Consequently, we chose the period from the first quarter of 1973 to the fourth quarter of 1990, which was under the floating exchange rate regime.

Determination of the yen rate, balance of payments, and the macroeconomic policy of Japan have been of major interest in international economics. Due to the floating exchange rate system, discussing the exchange rate as a variable fully controllable by authorities is difficult. Typically, studies on the exchange rate of Japan focuses on the macroeconomic facet of the adjustment. One study relating exchange rate and balance of payments is Ueda (1983), which provides a comprehensive study of the determination of Yen rate in the 1970's and early 1980's. Increasing importance of capital movement makes it difficult to explain the determination of foreign exchange rates. Fukao (1988) clearly explains that the importance of the difference between real interest rate is recently increasing, while the effects of accumulated current account are decreasing. A comprehensive study of the Japanese economy and the exchange rate is explained in Ito (1992) and the adjustment process of the late 1980's is explained in
Yoshitomi (1991). In all of these studies, the exchange rate determination is treated as not determinable by authorities.

Consequently we can see that this type of analysis is not quite suitable for the Japanese case. Nevertheless, we have included Japan as a benchmark for comparison to that of other counties.

##### A.2.2.2 Korea

To analyze the Korean exchange rate system, it is appropriate to divide the period into two parts, corresponding to the government's economic policy.

After a large devaluation in 1961 and 1964 to stimulate exports, and from 1965 to 1974, Korea's foreign exchange rate was flexible in the form of the so-called "crawling peg" which adjusts the rate gradually to follow the developments of inflation, thereby preventing the real exchange rate from being overvalued. This strategy of maintaining the level of the real exchange rate was adopted by the authorities to sustain export competitiveness in the face of high domestic inflation. Also, Korean authorities thought that the crawling peg exchange rate system was useful for promoting inflow of foreign direct investment, because investors were able to easily predict the changes. However, under this flexible exchange rate system, the adjustment was not sufficient to prevent overvaluation of real exchange rate, which led to major devaluation in the early 1970's.

From 1975 to 1979, Korean authorities fixed the exchange rate at $1 US=484 Won, for the following reasons. First, current account was in good condition due to strong export performance and increasing remittance from the workers in the Middle East, so the authority did not necessarily have to devalue the real exchange rate in this period. Secondly, pegging to the US dollar in this period actually amounted to a devaluation to the other currencies, particularly the Japanese Yen, improving the competitiveness of Korean exports. Thirdly, because of positive condition of current account, authorities focused on containing inflation caused by global inflation by fixing the exchange rate. However, in this period, heavy pressure on domestic demand caused inflationary pressure on the domestic economy, while the adverse effects of the second oil crisis resulted in rapid widening of the current accounts deficit.

The Korean economy faced a serious balance of payment crisis in 1979 and 1980 due to the direct and after-effects of the second oil shock. Furthermore, bad crops in 1980 and political turmoil triggered by the assassination of President Park were also extreme shocks to the Korean economy. Korean government adopted a stabilization program in 1980 supported by the IMF and the World Bank, in the course of which
Korea in February 1980 devalued the exchange rate by for more than 20% and changed to a flexible exchange rate system based on the currency basket. The exchange rate was determined by the weighted average of SDR by trade-weighted basket, but in reality, it was a “managed float,” in which the actual rate was determined by the authorities.

Since then, Korea has succeeded at adjusting the current account balance and avoiding debt crisis. This continuous adjustment of the exchange rate has been evaluated as appropriate for maintaining international competitiveness (Collins and Park, 1989).

Until 1986, the nominal exchange rate depreciated following adoption of this system and with the low inflation rate in this period, the real exchange rate also depreciated significantly. The current account balance improved significantly after the mid-1980's, and from 1986, turned to a surplus. Due to the accumulation of the current accounts surplus, the Won rate appreciated from the end of 1986. $ ^{3} $ As a result of the rapid economic development, Korea became an Article VIII country in 1988 and from March 1990 adopted a floating exchange rate system.

This study covers the period from 1970 to 1990, which we divided into two parts: one from 1970 to 1980 and another from 1981 to 1990.

##### A.2.2.3 Indonesia

The exchange rate policy of Indonesia has two special features. One is the lack of foreign currency control and the other is political factors affecting exchange rate policy.

The exchange rate of Indonesia has been affected by not only economic aspects but also by political influences. One important factor was to promote the growth of the agriculture sector, which was the primary export sector as well as the main industry of rural areas $ ^{4} $ . Technocrats, Javanese peasants and outer island residents were essentially opposed to overvaluation of the exchange rate. On the other hand, Indonesians in the import substitution industrial sector, who were protected against external competitiveness, were against devaluation. This political struggle caused
asymmetry of the exchange rate policy, in that when balance of payment was in deficit, the exchange rate was devalued but when it is in surplus, it remained at the same level.

The Indonesian foreign exchange rate was pegged to the US dollar at the rate of 415 Rupia/\$ from 1971 to November 1978, reflecting the rapid development of the petroleum sector and the high domestic economic development. However, during this period, the exchange rate was substantially overvalued and rural areas deteriorated. In November 1978, Bank Indonesia announced substantial devaluation and change of the exchange rate system: the exchange rate would be determined according to currency basket, but actual determination of the exchange rate was a managed floating system. The devaluation of November 1978 had a major effect on the exports of non-oil products, a quick response that proved the existence of the Dutch disease.

Until the mid-1980's, it appears that the fluctuation of oil prices and the budget revenues had a significant effect on the determination of the exchange rate. From the experience of hyperinflation at the end of President Sukarno's administration in the mid-1960's, the Indonesian government adopted a “Balanced Budget Principle.” $ ^{5} $ The core of this doctrine was balancing the total budget, and financing investment expenditures with the surplus of current budget, and with external assistance. Since substantial amounts of the revenue were generated by the tax on petroleum and profits from PERTAMIA, $ ^{6} $ which was based on foreign currency, when the revenue from current budget decreased due to decline of oil prices, the government had a tendency to devalue the exchange rate to earn nominal domestic currency-based revenue for the investment expenditure.

The after-effects of the second oil shock caused a recession in developing countries, which triggered a fast drop of oil prices. Indonesia faced declining exports and domestic inflation, which deteriorated the balance of payments. With these difficult conditions, expectation of devaluation caused severe capital fight, a situation which triggered the 33% devaluation in November 1983. Quite a similar situation occurred in 1985, when the oil prices plummeted because of the oil glut and the current account deficit increased. In September 1986, Rupia was devalued by 45%.

It has been widely pointed out that two major devaluations of March 1983 and
September 1986 were the result of declines in oil prices, which affected Indonesia through various channels. For the government, decline of the fiscal revenues was a serious effect; the government revenue depended heavily on oil revenues, which were based on the US dollar, so this mechanism had tremendous impact. Therefore, when the government devalued the exchange rate, the local currency-based revenue increased.

The fiscal aspect was not the only motive of the rapid devaluation of the exchange rate in 1980s. At the beginning of the 1980s, the Indonesian government recognized that due to the rapid economic growth, soon or later, its oil reserves will be exhausted and Indonesia will become a net importer of oil in the near future. So the Indonesian government started to transform the economy to free it from dependency on oil exports. As a part of the comprehensive economic policy, devaluation from the early 1980's was an important factor in transforming the economy.

##### A.2.2.4 The Philippines

It has been pointed out that the history of the Philippines' exchange rate policy is characterized by delayed adjustment to overvaluation, followed by major discrete changes (Dohner and Intal, 1989).

After a major devaluation in 1962, the exchange rate of the Philippines was fixed at US$1=3.9 Pesos from 1963 to 1970. To stabilize the economy in the face of the balance of payment crisis of early 1970's, which was the result of expansionary fiscal and monetary policy in the late 1960's, rescheduling of external debt and a stabilization program supported by the IMF were implemented. The exchange rate was devalued from $1US=3.9 Pesos to $1US=6.4 Pesos in February 1972. From May 1972, a flexible exchange rate system with a band of 4.5% was adopted. Throughout the 1970's, the exchange rate was basically pegged to the US dollar and thus the real exchange rate appreciated.

To cope with increasing current account deficit and to generate external financial resources from the late 1970's to the early 1980's, the exchange rate was devalued occasionally to adjust the real exchange rate caused by high domestic inflation. In June 1983, the exchange rate was devalued by 7.8%, and October of the same year, it was devalued again by 28.6% and pegged to the US dollar at the level of $1US=14 Pesos. The Philippine government started the adjustment in early 1983, but suspended external payments in October 1983. At this point, due to the low level of foreign exchange reserves, the central bank started the allocation of the foreign exchange. But this restriction stimulated black market transactions. However, in June 1984, authorities devalued again substantially by 18.9% to cope with high domestic