IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2112.02063.html
   My bibliography  Save this paper

Shock Symmetry and Business Cycle Synchronization: Is Monetary Unification Feasible among CAPADR Countries?

Author

Listed:
  • Jafet Baca

Abstract

In light of the ongoing integration efforts, the question of whether CAPADR economies may benefit from a single currency arises naturally. This paper examines the feasibility of an Optimum Currency Area (OCA) within seven CAPADR countries. We estimate SVAR models to retrieve demand and supply shocks between 2009:01 - 2020:01 and determine their extent of symmetry. We then go on to compute two regional indicators of dispersion and the cost of inclusion into a hypothetical OCA for each country. Our results indicate that asymmetric shocks tend to prevail. In addition, the dispersion indexes show that business cycles have become more synchronous over time. However, CAPADR countries are still sources of cyclical divergence, so that they would incur significant costs in terms of cycle correlation whenever they pursue currency unification. We conclude that the region does not meet the required symmetry and synchronicity for an OCA to be appropiate.

Suggested Citation

  • Jafet Baca, 2021. "Shock Symmetry and Business Cycle Synchronization: Is Monetary Unification Feasible among CAPADR Countries?," Papers 2112.02063, arXiv.org, revised Jan 2022.
    • Handle: RePEc:arx:papers:2112.02063
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2112.02063
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Baxter, Marianne & Kouparitsas, Michael A., 2005. "Determinants of business cycle comovement: a robust analysis," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 113-157, January.
    2. Roel Beetsma & Massimo Giuliodori, 2010. "The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 603-641, September.
    3. Michele Lenza & Giorgio E. Primiceri, 2020. "How to Estimate a VAR after March 2020," NBER Working Papers 27771, National Bureau of Economic Research, Inc.
    4. Tamim Bayoumi & Paolo Mauro, 2001. "The Suitability of ASEAN for a Regional Currency Arrangement," The World Economy, Wiley Blackwell, vol. 24(7), pages 933-954, July.
    5. Francesco Paolo Mongelli, 2005. "What is European Economic and Monetary Union Telling us About the Properties of Optimum Currency Areas?," Journal of Common Market Studies, Wiley Blackwell, vol. 43(3), pages 607-635, September.
    6. 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, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joao Loureiro & Manuel M.f. Martins & Ana Paula Ribeiro, 2010. "Cape Verde: The Case For Euroisation," South African Journal of Economics, Economic Society of South Africa, vol. 78(3), pages 248-268, September.
    2. Nagayasu, Jun, 2010. "Macroeconomic interdependence in East Asia," Japan and the World Economy, Elsevier, vol. 22(4), pages 219-227, December.
    3. Léleng Kebalo & Hamitande Dout & Mawuli K. Couchoro & Stéphane Zouri, 2022. "Intégration – commerciale, budgétaire, financière – régionale et inégalités de revenu dans la Communauté Economique des Etats de l'Afrique de l'Ouest (CEDEAO)," African Development Review, African Development Bank, vol. 34(S1), pages 102-116, July.
    4. Jean Imbs, 2010. "The First Global Recession in Decades," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 58(2), pages 327-354, December.
    5. Oliver Schenker, 2013. "Exchanging Goods and Damages: The Role of Trade on the Distribution of Climate Change Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(2), pages 261-282, February.
    6. Olivero, María Pía, 2010. "Market power in banking, countercyclical margins and the international transmission of business cycles," Journal of International Economics, Elsevier, vol. 80(2), pages 292-301, March.
    7. Çakır, Mustafa Yavuz & Kabundi, Alain, 2013. "Trade shocks from BRIC to South Africa: A global VAR analysis," Economic Modelling, Elsevier, vol. 32(C), pages 190-202.
    8. Jong-Wha Lee & Kwanho Shin, 2010. "Exchange Rate Regimes and Economic Linkages," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 1-23.
    9. Miescu, Mirela & Rossi, Raffaele, 2021. "COVID-19-induced shocks and uncertainty," European Economic Review, Elsevier, vol. 139(C).
    10. Reto Bürgisser & Donato Di Carlo, 2023. "Blessing or Curse? The Rise of Tourism‐Led Growth in Europe's Southern Periphery," Journal of Common Market Studies, Wiley Blackwell, vol. 61(1), pages 236-258, January.
    11. Bofinger, Peter & Franz, Wolfgang & Schmidt, Christoph M. & Weder di Mauro, Beatrice & Wiegard, Wolfgang, 2010. "Chancen für einen stabilen Aufschwung. Jahresgutachten 2010/11 [Chances for a stable upturn. Annual Report 2010/11]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201011.
    12. Mansour Khalili Araghi & Farideh Sadeghian Fard, 2011. "Investigating the Co- Movement and Causality between Iran and Germany," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 16(2), pages 1-9, spring.
    13. Cashin, Paul & Mohaddes, Kamiar & Raissi, Mehdi, 2017. "China's slowdown and global financial market volatility: Is world growth losing out?," Emerging Markets Review, Elsevier, vol. 31(C), pages 164-175.
    14. Azcona, Nestor, 2022. "Trade and business cycle synchronization: The role of common trade partners," International Economics, Elsevier, vol. 170(C), pages 190-201.
    15. Olatunji A. Shobande & Oladimeji T. Shodipe & Simplice A. Asongu, 2019. "Global Shocks Alert and Monetary Policy Responses," Research Africa Network Working Papers 19/066, Research Africa Network (RAN).
    16. Raghavan, Mala & Devadason, Evelyn S, 2019. "How resilient is ASEAN-5 to trade shocks? Regional and global shocks compared," Working Papers 2019-04, University of Tasmania, Tasmanian School of Business and Economics.
    17. Jean-Paul Fitoussi & Francesco Saraceno, 2013. "European economic governance: the Berlin–Washington Consensus," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(3), pages 479-496.
    18. Kurmaş Akdoğan, 2017. "Unemployment hysteresis and structural change in Europe," Empirical Economics, Springer, vol. 53(4), pages 1415-1440, December.
    19. Guglielmo Maria Caporale & Alessandro Girardi, 2016. "Business cycles, international trade and capital flows: evidence from Latin America," Empirical Economics, Springer, vol. 50(2), pages 231-252, March.
    20. Auer, Raphael A. & Mehrotra, Aaron, 2014. "Trade linkages and the globalisation of inflation in Asia and the Pacific," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 129-151.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2112.02063. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.