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Financial Integration in East Asia

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Author Info

  • Hiroshi Fujiki

    (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: hiroshi.fujiki@boj.or.jp))

  • Akiko Terada-Hagiwara

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: akiko.hagiwara@boj.or.jp))

Abstract

This paper examines the degree of integration into world financial markets and the impacts on several key macroeconomic variables of selected East Asian economies, and draws policy implications. According to our analysis, the degrees of integration into world financial markets in those economies are increasing. Regarding the impacts of increasing integration into world financial markets on several macroeconomic variables, we find three results. First, casual two-way plots among macroeconomic variables do not support the theoretical prediction of reduction in relative consumption volatility. Second, the saving-investment correlation is higher than those of the euro area economies. Third, the degrees of smoothing of idiosyncratic shock by cross-holding of financial assets are lower than in the euro area economies. These results suggest two policy implications. First, there is some room for improvement in welfare gains in those economies by means of further risk sharing. Second, holding all other conditions equal, the increasing integration into world financial markets alone is unlikely to provide sound grounds for a currency union in East Asia at this stage.

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Bibliographic Info

Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 25 (2007)
Issue (Month): S1 (December)
Pages: 57-100

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Handle: RePEc:ime:imemes:v:25:y:2007:i:s1:p:57-100

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Keywords: Exchange rate regime; Financial integration; Risk sharing;

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References

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Citations

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Cited by:
  1. Dong He & Wei Liao, 2012. "Asian Business Cycle Synchronization," Pacific Economic Review, Wiley Blackwell, vol. 17(1), pages 106-135, 02.
  2. Mark M. Spiegel, 2008. "Financial globalization and monetary policy discipline," Working Paper Series 2008-10, Federal Reserve Bank of San Francisco.
  3. Marvin Goodfriend, 2007. "Monetary Policy in East Asia: Common Concerns," IMES Discussion Paper Series 07-E-18, Institute for Monetary and Economic Studies, Bank of Japan.
  4. Hideaki Hirata & Keisuke Otsu, 2011. "Accounting for the economic relationship between Japan and the Asian Tigers," Working Paper 164496, Harvard University OpenScholar.
  5. Hong Bum Jang, 2011. "Financial Integration and Cooperation in East Asia: Assessment of Recent Developments and Their Implications," IMES Discussion Paper Series 11-E-05, Institute for Monetary and Economic Studies, Bank of Japan.

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