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Feasibility of Currency Unions in Asia - An Assessment Using Generalized Purchasing Power Parity -

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  • Hiroyuki Taguchi

    (Vice President, Policy Research Institute, Ministry of Finance)

Abstract

This paper examined the economic feasibility of forming a regional currency block in Asia, by adopting a generalized purchasing power parity (G-PPP) approach to identify the existence of common trends in real exchange rates among a group of countries. To be specific, we conducted both bilateral and multilateral co-integration estimation on real exchange rates with the samples of 17 Asian countries covering south Asia during the post- 1997-98 crisis period. Our findings are as follows; First, Japan, China and Korea are shown to be little candidate for any optimum currency areas. Second, ASEAN and south Asia, as a group, passed the G-PPP condition. Third, some co-integrating interactions were interestingly found between ASEAN and south Asian members. Our strategic implication emphasizes on the significance of a smaller local subgroup multi-speed strategy toward a long-run goal of currency union in Asia.

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File URL: http://www.mof.go.jp/english/pri/publication/pp_review/ppr011/ppr011e.pdf
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Bibliographic Info

Article provided by Policy Research Institute, Ministry of Finance Japan in its journal Public Policy Review.

Volume (Year): 6 (2010)
Issue (Month): 5 (June)
Pages: 859-872

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Handle: RePEc:mof:journl:ppr011e

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Related research

Keywords: optimum currency area; generalized purchasing power parity; co-integrating relationship; ASEAN; south Asia;

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  1. Changmo AHN & Hong-Bum KIM & Dongkoo CHANG, 2006. "Is East Asia Fit For An Optimum Currency Area? An Assessment Of The Economic Feasibility Of A Higher Degree Of Monetary Cooperation In East Asia," The Developing Economies, Institute of Developing Economies, vol. 44(3), pages 288-305.
  2. Enders, Walter & Hurn, Stan, 1994. "Theory and Tests of Generalized Purchasing-Power Parity: Common Trends and Real Exchange Rates in the Pacific Rim," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 179-90, June.
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